Rt Hon Sir William Birch
Treasurer
Hon Bill English
Minister of Finance
15 June 1999
For Immediate Release
Overseas Debt
Treasurer Sir William Birch and Finance Minister Bill English said the slight increase in total overseas debt would be
addressed by improving economic growth and by increased saving in the private sector.
The Ministers said the increase in overseas debt had slowed substantially in the past 12 months, with debt rising only
0.6% when discounting currency changes, and 2.4% in total.
"And it is important to note that public sector debt - which the government has control over - has continued to fall,
by $2.6 billion.
"The debt figures reflect the same factors as the current account - high private sector borrowing offshore.
"The corporate sector borrowed an extra $3.5 billion in the year to March, and the stock of corporate overseas debt
increased by another $1.4 billion because of the depreciation in the New Zealand dollar.
"Official sector debt (Crown debt excluding SOEs) on the other hand, saw the Crown repaying $3 billion of debt, offset
by $0.4 billion of exchange rate losses, proving the worth of the Government's commitment to running surpluses and
repaying debt."
Mr Birch said it was crucial at this time that the Government continued to run surpluses and reduce public debt.
" Labour and the Alliance's advocacy of high-spending government means higher taxes and higher debt.
"We have to continue to lead the way in saving, and to better encourage private saving among new Zealanders.
"The other thing the Government must keep doing is ensure that our economic framework continues to encourage productive
investment.
"Businesses obviously don't borrow for the sake of it. They borrow to fund investment and business expansion.
Businesses expect to see a return on their investment - as do the lending institutions.
"About 60% of the increase in corporate debt is non-bank borrowing - clearly for business investment.
"We should make sure that nothing prevents investment moving into the most productive sectors of the economy."
The Ministers said it was also important to understand the nature of the debt figures, given Jim Anderton's capacity to
misrepresent them.
"This is a gross debt figure, there is no account of the assets behind the debt, or that the borrowing is being used to
purchase.
"Total overseas debt figures do not mean that Government or the taxpayer are more indebted. Taxpayers have become less
indebted because of the large fall in public debt.
"What they show is that NZ businesses and NZ individuals are investing more, and that they are raising off-shore
capital for business development or to buy houses.
"Our strong, commercial banking sector, means these loans are viable. They require an asset behind them, and an income
to finance them. It is just the same as buying a house. The person isn't in debt for no reason. They have an asset - the
house - and an income to allow them to take out the loan.
"Focusing purely on the debt they have ignores the value of the house they are buying, or the income they have which
will allow them to service, and pay off the debt. It reflects one side of the ledger only."
Ends