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The National Debt Of New Zealand
New Zealand counts all public debt in its national debt figure. That includes the money owed by all levels of government. The debts of state-owned enterprises are not included and neither are obligations for future state and Civil Service pensions, nor the risk of guarantees given to the nations’ bank depositors.
The IMF calculated that the gross national debt to GDP ratio stood at 26.428% at the end of 2017. This is one of the lowest debt ratios in the world. New Zealand’s net debt to GDP ratio according to the IMF is even lower. That stood at 4.649% at the end of 2017.
Who is in charge of New Zealand’s national debt?
The national government of the Kingdom of New Zealand is responsible for managing the nation’s debt. The Minister of Finance in the cabinet is the head of the Treasury of New Zealand. This government department is tasked with managing all of the financials aspects of running the country, including raising public debt.
The parliament of New Zealand has tasked the government with getting the national debt down to 20% of GDP by 2020. If that goal is framed in terms of net debt, then that aim has already been achieved. In terms of gross public debt, the government still has a little way to go.
A department of the Treasury, called the New Zealand Debt Management Office is responsible for raising debt. The office is given a limit each year on how much debt it can raise. As the chart above shows, the country usually undershoots that target.
Although the Reserve Bank of New Zealand isn’t involved in running the national debt, it is responsible for the money supply and the amount of debt raised by the government influences that figure.
New Zealand government securities
The New Zealand Debt Management Office issues four types of securities:
- Treasury bills
- Benchmark bonds
- Inflation-linked bonds
- Retail bonds
The first three categories are offered as commercial investments. The retail bonds are called Kiwi Bonds and are really a format of debenture or deposit, rather than a bond.
The commercial securities offered by the government of New Zealand fall into two categories:
- Short-term instruments
- Long-term instruments
The general definition of long-term finance is that it covers a period of at least a year. Short-term finance covers a period of less than one year. It is common practice for governments to offer a range of maturities on its short-term debt instruments. New Zealand issues its Treasury bills for periods of 3 months, 6 months, and 1 year (minus one day).
As with Treasury bills issued by other governments, these debt instruments do not offer any interest. However, they are sold at a discount and redeemed at full face value on the maturity date.
The long-term financing is covered by benchmark bonds, which are also called “nominal bonds,” and inflation-indexed bonds (IIBs).
Nominal bonds have a face value, which is the amount that will be repaid on maturity. The shortest term that the government can issue from these bonds is one year. The government pays the holders of these bonds an annual interest payment. The interest rate is fixed for the duration of the bond. Each year, the calculated interest payable is divided in two and paid out in two six months installments.
Inflation-indexed bonds also have maturities of more than a year and they also pay a fixed interest rate each year. The face value of the bond increases with inflation each year, so the actual amount received in interest each year increases and the final redemption value of the bond increases with inflation. The interest payable for a year is divided into four and paid out quarterly.
As of 30 April 2018, the New Zealand government had a total value of outstanding bonds of NZ$ 77.7 billion and NZ$ 4.1 billion of Treasury bills outstanding.
What is New Zealand’s credit rating?
The government of New Zealand has never defaulted on its debt and it has never paid interest or capital redemptions late. This is one of the reasons that the country has a very good long-term credit rating. The assessments of the three major credit ratings agencies is shown in the table below.
Rating Agency Local Currency Foreign Currency Latest Update Moody's Investor Service Aaa (stable outlook) Aaa (stable outlook) April 2018 Standard & Poor's AA+ (stable outlook) AA (stable outlook) January 2018 Fitch Ratings AA+ (stable outlook) AA (stable outlook) February 2018
How does the NZDMO sell government bonds?
The initial sale of government bonds is called the “primary issuance,” or “primary market.” Sales of nominal bonds, IIBs, and Treasury bills are held by auction. The NZDMO issues a schedule for these sales at the beginning of each quarter. Bond sales are usually held every Thursday, while Treasury bill auctions take place every other Tuesday.
Only authorized dealers are allowed to bid in these primary sales. All other traders need to buy their bonds through the secondary market, which is overseen by the Reserve Bank of New Zealand.
Who holds New Zealand’s debt?
The categories of traders that own New Zealand government securities and the percentage holdings of each group are shown in the table below.
Investor category Nominal Bonds Inflation-indexed Bonds Treasury bills Kiwi Bonds Reserve Bank 3.79 5.88 0.00 0.00 Registered banks 14.67 1.94 76.36 0.00 Other financial corporations 12.21 1.87 4.40 0.55 Non-financial corporations 0.03 0.01 0.00 0.55 Central government 7.05 53.29 1.67 0.00 Local government 0.10 0.01 0.00 0.55 Non-profit institutions 0.00 0.01 0.00 0.00 Households 0.48 0.18 0.00 98.34 Non-residents 61.67 36.82 17.6 0.00 Unallocated 0.00 0.01 0.00 0.00 Total percentage 100.00 100 100 100 Total Amount in NZ$m 60,715 17,000 4,200 181
What facts should you know about New Zealand's national debt?
- You could wrap $1 bills around the Earth 338 times with the debt amount.
- If you lay $1 bills on top of each other they would make a pile 9,479 km, or 5,890 miles high.
- That's equivalent to 0.02 trips to the Moon.