Expensive Borrowing

Press, Volume CIV, Issue 30804, 16 July 1965, Page 10

Expensive Borrowing

New Zealand’s recent 20 million dollar loan is expensive borrowing. Offered at a 2| per cent discount, the bonds carry an interest rate of 5| per cent to return the investor a fraction less than 6 per cent. While the Government, if tackled on the subject, could reply, with some justification, that the money is needed to finance essential projects in New Zealand, this is only part of the answer. At the end of June the net overseas assets of the banking system were only £BO million—£lB million lower than a year earlier. The low level of overseas reserves lends some urgency to the Government’s latest borrowing abroad. The need for borrowing abroad could have been reduced, of course, if New Zealand had spent less on imports in the last 12 months. Payments for imports, Government and private, totalled about £330 million in the last 12 months: a reduction of 2| per cent in this total would have saved more than the £7 million raised in the latest overseas loan. This loan will certainly not be the only one raised abroad this year, and it may not even be the most expensive. The need for heavy borrowing abroad this year is regrettable, especially after three years of rising export income, to a record 1393 million in 1964. The Government will be criticised by the Opposition if it takes no measures iow to reduce the need for overseas borrowing; and t will be criticised by importers, manufacturers, and vage-eamers if it attempts to restrain imports. But iow many of these critics urged the Government last tear to reduce consumption, demand for labour, and irofits, which would have avoided or reduced the iresent need for overseas borrowing?