Budget causing headaches

Press, 29 March 1980, Page 1

Budget causing headaches

Wellington reporter IS

New Zealand had very little room to manoeuvre in the economic field in the short term, according to the Deputy Minister of Finance (Mr Templeton). He told a meeting of the Wellington Economic Society yesterday that as the Government prepared the 1980 Budget it had to ac* cept a difficult forward situation.

The basic strategy of restraint as a basis for a steady, though limited, growth path remained vital for a more broadly based growth in the medium term. The level of over-all economic activity in New Zealand, appeared. to have remained fairly steady over the last six months, said Mr Templeton. Capital investment was still very weak, but consumer demand had been maintained and this had helped to prevent any significant worsening of the employment situation. The Government’s 197980 fiscal strategy had been aimed at gradually easing the rate of growfh in domestic activity to not place excessive pressure on the balance of payments, he said.

In the next few months the outlook would be affected by recession in the international economy, which was expected to be more marked than the Government had thought.

This would affect, New Zealand’s current account] balance, which was forecast to deteriorate further in the coming year, said Mr Templeton.

A modest increase was expected in the trade balance, as recent increases in import payments were thought to be the peak of a cycle and import volumes were expected to go on declining until mid-1981. Export volumes would continue to rise — 5 per; cent up on 1978-79 — reflecting a good farm growing season and the switch in manufacturing from the domestic to the external market, he said. But high visible payments would lead to a worsening invisibles deficit, and this would be reflected in the current account balance too.

He predicted internally that:

— Per capita the national product was now expected to hold constant in real terms. This was unsatisfactory, and of concern to the Government. — Unemployment could be expected to decline marginally until 1981. — Inflation rates remain* ed high, and would continue to do so in 1980-81. — Monetary aggregates were expected to be more stable over the first part of the year, but in the second part were expected to tighten, partly as a re* suit of the deterioration in the current account balance.

A NZPA report from Washington says that an American - led recession, with a further slowing in world trade could force New ealand to raise further big loans to handle its balance of payments problems, according to financial sources in Washington.

Earlier this month, the Government announced that it had raised a loan for the equivalent of $102.8 million in the Middle East. Details, including the lender, the interest rate, and the length of the loan were not revealed.

Sources in Washington

said it was likely that tha Government had turned to the Middle East — for the first time since 1977 —■ be* cause heavy drawings in recent months have exhausted its unconditional credit! with the International Monetary Fund (1.M.F.).

New Zealand cannot now draw money from the IMF.-without agreeing to an economic stabilisation programme — strict terms on the conduct of the economy laid down by IMF, experts.

The sources say that it is not a crisis situation for New Zealand, which, like many other countries.; has been hard hit by rising oil prices in recent years. But they say it will need careful economic management to recover its financial position.

“The danger flags are out and the situation will bear watching over the next few months,’’ one source said.

Figures show that New Zealand’s basic drawings from the I.M.F. to date total SUS 336 million, which still has Jo be repaid. , A withdrawal of SUS 62 million last November exhausted New Zealand’s unconditional credit, The sources said much of New Zealand’s recent borrowing from I.M.F, reserves had been to pay back earlier loans. New Zealand still has nearly SUS2OO million of loans under the oil facility to pay back within the next couple of years. Money for this repayment will have to be raised overseas unless there is a dramatic turnround in the New Zealand economy A Press Association message from Wellington said that New Zealand should not have too much trouble borrowing overseas in the 1980 s according to the Governor of the Reserve Bank (Mr R. W. R. White).. The nation has good standing in the world’s capital markets, he told a meeting of accountants in Wellington.