Widening current account deficit needs policy attention

Widening current account deficit needs policy attention – 20 June

A widening current account deficit needs Government policy attention say the New Zealand Manufacturers and Exporters Association (NZMEA). Statistics New Zealand released their Balance of Payments and International Investment Position for the March quarter this morning showing a current account deficit of 4.8 percent of GDP, up from 3.7 percent last year, and a larger deficit than was predicted.

NZMEA Chief Executive John Walley says, “Addressing the current account deficit is much more important than addressing the Government deficit, and with Government’s bailing out financial institutions there is little to distinguish private debt from public debt in any case.”

“Reducing the current account deficit is essentially about increasing export incomes and encouraging local savings so that our assets remain in our hands – much of the current account deficit comes from repatriated profits from foreign owned companies based in New Zealand as the graph below shows.”

“The Government must do its bit to encourage the rebalance. On the export earnings side a lower and more stable exchange rate is the key issue and making Kiwisaver compulsory would help on the savings side.”

“The International Monetary Fund has estimated that a 15 percent drop in the exchange rate would be needed to balance the current account. The Trade Weighted Index is currently hovering around 70 – a 15 percent drop would take it to a far more acceptable level below 60. Government policy has to do more than simply go ignoring this requirement.”

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