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NZ govt reins in borrowing after $20 bln splurge

NZ govt reins in borrowing after $20 bln splurge; debt to peak in 2015

By Paul McBeth

May 19 (BusinessDesk) – Weekly government borrowing will drop from around $380 million a week at present to $100 million a week in the year ahead, says Finance Minister Bill English in the Budget.

After borrowing a record $20 billion in the year to June 2011, the New Zealand Debt Management Office will issue $13.5 billion of bonds in the 2012 financial year.

That follows record debt-raising to finance Budget deficits and capital spending, cope with billions of dollars of damage caused by the two Christchurch earthquakes, and some pre-funding of future debt needs because of favourable borrowing conditions.

As part of this coming year’s issuance, the office plans to proceed with an inflation-indexed bond, and a new retail bond to help fund the Christchurch rebuild will also be launched, but without a target issuance level.

“Bond issuance has peaked with this fiscal year’s $20 billion bond programme,” DMO Treasurer Philip Combes said in a statement. “Pre-funding and budget 2011 initiatives have reduced the overall future borrowing programmes from 2011/12 compared to the December forecasts.”

The DMO added $6.5 billion to its borrowing programme over the past year, in part to take advantage of historically low interest rates, which managed to attract strong investor support.

The government’s debt manager plans to issue $12 billion of debt in 2013, $10 billion in 2014, and $8 billion in 2015. Taking maturities into account, that means net issuance of $5.9 billion next year, $2 billion in 2013, $10 billion in 2014 and maturities will outweigh new funds by $2 billion in 2015.

Including this year’s $20 billion injection, the government has new net borrowings of $35.9 billion over the next five years.

Still, the Treasury expects net debt to peak at $72.9 billion, or 28.5% of the economy, in 2015, up $2.4 billion from forecasts in the half-year update. Gross debt is expected to peak a year earlier at $88.7 billion, or 37.9% of gross domestic product.

Finance Minister Bill English told media before his speech net debt as a percentage of GDP is forecast to come down to the low 20s in the early part of next decade.

“If we had continued with the policy settings we had in place last year without the decisions made in this budget, but including the costs of the earthquake, net debt would have peaked around 35%,” he said. “For a country with among the highest foreign liabilities in the world, that was simply too high.”

Along with its normal issues, the DMO will look to tap retail investors with a new four-year Kiwi Bond, available to New Zealand residents as of today. The securities will pay 4% per annum, and limited to total investment of $500,000.

The bonds will make up part of the DMO’s total issuance, though the office isn’t sure what kind of volumes it will attract.

Any money raised through the Kiwi Bonds will be diverted into the government’s $5.5 billion Canterbury Earthquake Recovery Fund.


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