DFC doubts debt policy

Press, 3 December 1987, Page 2

DFC doubts debt policy

By

BRENDON BURNS

political reporter

Public debt is at an “oppressive” level yet the Government may not use all the money raised from selling State assets to retire some of the debt, according to its own investment bank, DFC New Zealand. In its fortnightly financial newsletter, its senior market economist, Mr Craig Stobo, said the total debt to gross domestic product ratio has risen dramatically in recent years. The combined New

Zealand dollar and foreign currency debt was now almost equal to the i total value of New Zea5 land’s production of goods ; and services, he said, i Tables in the newsletter - show this totals nearly , $42.5 billion, or 84.9 per - cent of G.D.P. i “The costs of servicing the stock have meant that - over 21 per cent of the • Government’s revenue is ■ used just to service the I debt,” it said. : The public debt in 1986 i was $32 billion. t Shortly before the Government took office in r 1984, the public debt was

$22 billion. Mr Stobo said while the size of public debt remained as high as it was, it would continue to deteriorate. He warned there were several other dangers in not retiring debt and producing budget Surpluses. These included upward pressure on interest rates seriously affecting private sector investment activity; eroded investor confidence in the New Zealand economy; and encouragement of the view that the Government was not serious about its anti-infla-tionary strategy.

Mr Stobo said the 1987 Budget had announced the intention to retire $6OO million of public debt and produce a Budget surplus of $379 million. The surplus would only be achieved by asset sales. Z “At this entirely unclear stage in the financial year, the Government appears to be positioning itself to generate significantly more revenue from asset sales than it needs to use to retire debt.” That would be “a financially irresponsible position,” said Mr Stobo.