THE PRESS SATURDAY, MARCH 10, 1984. Hints from the ledger

Press, 10 March 1984, Page 16

THE PRESS SATURDAY, MARCH 10, 1984. Hints from the ledger

The breakdown of New Zealand’s overseas balance-of-payments figures, released this week by the Department of Statistics, confirms the trends disclosed in the Reserve Bank’s overseas exchange transaction figures that were released last month. The two sets of figures are not comparable; they measure different things in different ways. Nevertheless, between them they paint a clear picture of New Zealand’s economic performance in trade and in borrowing, and of the country’s ability to live within its means. In short, the figures are not unlike a bank statement for the country, showing the income that has been deposited, the amount withdrawn for purchases, and the state of the overdraft. The latest figures are for the last quarter of last year. They show a healthier state of affairs than 12 months previously, but also hint at possible problems in the future. By both sets of measurements, New Zealand finished 1983 better off than it had been at the start of the year. The current account deficit was less than a half of what it was in December, 1982 — down from $1845 million to $894 million — and the deficit on the balance of payments was $1768 million, an improvement of more than $4OO million on the $2190 million in the red with which the country began the year. Taken in isolation, the figures for the December quarter were not as cheering. Some unusual factors had to be taken into account. As an accepted accounting practice, the arrival under charter of two oil exploration rigs in New Zealand waters for more than a year meant a book entry of almost $3OO million in that quarter under the heading of capital imports. When the rigs go, they will be recorded as an export; but they accounted for a substantial part of the increased deficit for the quarter. This was $Bl7 million compared to a deficit of $424 million for the same three months in 1982. It would be premature to read too much into the figures just for this quarter. Again because of the arrival of the oil rigs, the balance on merchandise trade — simply the difference between what New Zealand earns for its exports and pays for its imports — showed a deficit of $329 million. Although New Zealand traditionally has a balance-of-payments deficit — a condition that most analysts refer to as “endemic” or “chronic” — the country usually earns more for its exports than it pays for its imports. The deficit in the balance of payments most often is the result of such costs as freight, insurance, and servicing of loan debts which in an ideal world would be met from the profits of merchandise trade. Thus a negative result in

the balance on merchandise trade would normally indicate a worsening condition because the descent into debt would be more rapid and without any compensatory gains. Fortunately, the deficit in merchandise trade balance for the quarter does not reflect normal circumstances, and is not as disastrous as the bald announcement of a $329 million deficit might suggest. In fact, for the year as a whole, merchandise trade balances continued to show an improvement, partly as the result of modest improvements in the prices paid for New Zealand’s exports and partly as the result of conservative levels of imports. New Zealand ended 1983 with a credit in the merchandise trade balance of $92 million, a much happier result than the deficit of $279 million incurred in the previous year.

The distortion that can be attributed to the arrival of the two oil rigs, however, does not account completely for the excess of spending on imports over the income from exports. This hints at a problem which the country will have to face squarely. After allowance has been made for the oil rigs, the figures for the December quarter show a growth in the value of exports of 6.8 per cent, but a growth in the value of imports of about 12 per cent. When economic activity picks up in New Zealand, as it is showing signs of doing, the demand for imports will grow. Some of the demand will come from individuals, but much of it will come from manufacturers as they import raw materials, either to service the domestic market or to manufacture for export orders. The increased level of imports revealed by the figures for the December quarter confirm the more active economy apparent in other indicators, such as the buoyant level of new house and building construction.

Great care will be needed to retain a manageable balance between the level of export income and import payments, particularly in the period of growth as the economy starts to gear itself up again. In theory, what the Government would like to do is keep a tight hold on imports for private consumption and to .keep up the flow of imports that are needed to supply export orders. In practice, this is not an easy balance to achieve, for all that it is desirable for the good of the economy. Political considerations could upset the balance, particularly if election year policies allow stimulation of the domestic economy without an accompanying increase in export income.