Council of Trade Unions media release
22 December 2010
Banks still big overseas borrowers, government still has net overseas assets
Council of Trade Unions Economist Bill Rosenberg commented on the balance of payments figures released today:
“While the balance of payments shows a welcome small improvement with the current account deficit reducing even after taking account of the Canterbury Earthquake, two facts are important to keep in mind.
“First, the government still has $2.7 billion more overseas assets than liabilities. Much of its borrowing has been from New Zealand residents. Although government net debt has risen by about $11 billion since pre-crisis times in 2007, its net overseas position has deteriorated by only about $6 billion in the same period. New Zealand’s net liabilities are still owed privately, mainly by banks.
“Second, despite new Reserve Bank rules, banks still owe 60 percent of the gross debt ($150.1 billion). The Reserve Bank has forced them to borrow at longer terms to reduce the huge vulnerability shown in the Global Financial Crisis, but they are still borrowing heavily abroad to finance mortgages and other lending in New Zealand. That means difficulty for the Reserve Bank to control money supply in the future, and the risk that we will get another overseas debt-fuelled housing price bubble.
“The improvement in the balance of payments is largely due to lower overseas company profits, when the effects of the earthquake are removed. That will turn around, and the position is starting to turn, with the current account deficit beginning to rise again as a percentage of GDP.”