Data Flash (New Zealand)
December Economic and Fiscal Update (DEFU) and Budget Policy Statement (BPS) Key Points
- The total additional funding requirement for 2001/02 is 1.1bn as the Government looks to cover a cash flow shortfall
resulting from the funding of the Air New Zealand rescue package.
- Around $500m of the additional funding is achieved by retaining bonds issued previously with the intention that they
be swapped. A further $500m of the additional funding requirement is obtained from the overfunding of the 2000/01
requirement (the actual outturn was better than expected at Budget time). This leaves a residual of $100m to be funded
by additional NZD bonds.
- However, given the step up in the funding needs for 2002/03 (discussed below) the Government as decided to pre-fund
next year's requirement to the tune of $500m in the current fiscal year. As a result, this year's bond tender programme
has been increased by $600m to $4.1 bn (see attached table for revised dates - one additional tender has been
- This means that a further $2.3bn of funding will be sought in the first 6 months of 2002. In addition, the tendering
of the Governnment Superannuation Fund's portfolio will contribute additional supply. As a partial offset, the March
2002 bond will mature (2bn remaining on issue).
- The projected bond programme for the out years - already large due to debt refinancing, higher capital expenditure and
the need to fund the Government's new superannuation fund - has also been revised up, largely due to downward revisions
to the Treasury's projections of economic growth. An additional of $600m of issuance is projected for 2002/03 and $700m
of for 2003/04.
- The Treasury expects the economy to expand 3.1% in 2001/02. Therafter, growth of 1.9% is expected in 2002/03 down from
the 3.3% growth expected previously, reflecting the impact of the global slowdown, before rebounding to 3.7% in 2003/04.
The Treasury forecasts for 2004/05 and 2005/06 suggest an assumed trend growth rate of 2.7% (A table summarising the
economic and fiscal projections is presented next page.)
- The change in growth profile is reflected in the fiscal projections. The Treasury now anticipates a fiscal surplus
(excluding revalations and accounting adjustments) of $1.2bn for the year ended June 2002 - just a little below the
Budget projection. However, the shortfall grows to $0.6bn in the 2003 fiscal year. As the economy rebounds, the fiscal
surplus is forecast to return close to Budget projections.
- The Treasury forecasts inflation to steadily fall over the next years, to 1.3% yot in Q1 2003. Thereafter, inflation
is expected to remain close to the centre of the RBNZ's target range (ie 1.5% yoy).
- The current account deficit is forecast to fall to 3.1% of GDP by March 2002 before rising gradually to 4.0% of GDP
over subsequent years.
- The Treasury's forecasts are predicated on the view that the Reserve Bank's 90 day bank bill rate averages 4.8% in
March 2002 (consistent with the OCR remaining at its current level of 4.75%), rising to 5.8% in March 2003 and 6%
thereafter. The TWI is assumed to appreciate gradually to 55.0 by March 2005.
- The Government remains committed to maintaining operating surpluses over the course of the economic cycle and to
maintaining gross debt of 30% of GDP consistent with net debt below 20% of GDP, but prgress towards that goal is
expected to be a little slower than the Government previously projected.
- The 2002/03 Budget will give priority to spending on health and education, as well as assisting industry