N.Z. borrowing burden noted by bank

Press, 4 January 1980, Page 13

N.Z. borrowing burden noted by bank

The increasing burden on New Zealand from the servicing of the Government’s overseas borrowing is noted in the annual report of the Bank of New South Wales. Ltd.

In a section dealing with economic conditions in New Zealand, the Wales says that the' economy made a strong recovery from recession during the year to September 30 in response to a marked rise in Government spending, and some...improvement in export earnings. “The pressure on the balance of overseas' payments. which is being augmented by continuing high local demand, is being met by a programme of Government foreign borrowing.

“The immediate outlook for export earnings is good, but the growing obligations for official debt service are an increasing burden on the

balance of payments,” the Wales says. “Consumer outlays rose sharply, but capital expenditure and employment showed little change. The high volume of stocks was run down, and businessmen, believing the recovery to be only short-lived, preferred to work existing plant and equipment more intensively rather than increase productive capacity,” the bank says. The Wales recalls how-in the second half of 1978 the Government tried to offset the inflationary effects of its fiscal policy "by tightening monetary policy. The growth of private sector credit was restrained, reserve asset ratios of '• the trading, banks were tightened, there was aggressive marketing of Government savings stock, and the Reserve Bank corpmenced active openmarket operations.

But the Wales says that the growth of the money supply continued to accelerate, fuelled by the SI4OOM Government deficit for the year, which represented about 9 per cent of Gross National Product.

Further measures to curb the growth of the deficit came early in 1979 with a wide range of measures. Further pressure was applied in June and October. “As • a consequence, competition for deposits intensified and interest rates charged by all lending institutions rose sharply,” the Wales said. However, the bank says that despite the restraints on bank lending capacity imposed by the reserve requirements, the growth of the money supply is being increased by a Government deficit which is still equivalent to 6 per cent, .of G.N.P.