NZ dollar should be 15% lower to cut current account: IMF   8 Jun 2012

Paul McBeth

The New Zealand dollar needs to be 15 percent lower to bring the nation's current account deficit to a more sustainable level, according to the International Monetary Fund.

New Zealand's external vulnerability is cited as the key medium-term issue for the country, which will need a better national savings rate and reduced reliance by banks on foreign funding, according to the IMF's concluding statement on the economy. That reliance on global funding assumes the Canterbury rebuild gathers pace and global interest rates get back to more normal levels.

The global lending agency sees New Zealand's current account deficit rising to 7.1 percent of gross domestic product and net external liabilities to 84.8 percent of GDP by 2016. That's worse than the Treasury's latest forecasts for a 6.9 percent current account deficit and 80.8 percent net foreign liability deficit in the 2016 March year.

"Staff analysis suggests that the New Zealand dollar is currently stronger than is consistent with a level of the current account deficit that is more sustainable over the long term," the report said. To stabilise external liabilities at the 2009 level, "the New Zealand dollar would need to be about 15 percent weaker than its current level."

New Zealand's trade-weighted index fell to 69.83 this morning from 70.08 yesterday. The Budget economic forecasts project the TWI falling to 63.0 in 2016, the end of its forecast period.

In April, the IMF preliminary statement on New Zealand backed the government's plan to get its own books back in the black by 2014/15, which will unwind fiscal stimulus as the Canterbury rebuild gets under way and offer headroom in the event of another global meltdown.

The IMF held to the same line in its concluding statement, saying lower net government debt will help contain the current account deficit over the medium term and reduce external vulnerability by lifting the national saving rate.

However, it questioned whether New Zealand's unique position, in that most of its external debt is private rather than public, raises the question "whether this would limit the ability of budget deficit reduction in the case of New Zealand to bring about a reduction in foreign liabilities more broadly."

The IMF also backed the government-appointed Savings Working Group's recommendations to shift more of the tax base to consumption over the medium-term and to index tax on interest income to inflation.

It said New Zealand's economy continues to grow at a modest pace, with GDP forecast to expand 2.3 percent in 2012, rising to 3.2 percent in 2013, though the size and timing of the recovery is uncertain due to the delays in the Canterbury reconstruction.

Europe's financial woes and a slowdown in the Chinese and Australian economies are seen as the biggest risks, though New Zealand has space to respond to adverse shocks, the report said.

The IMF said there is a medium likelihood of declining export demand and deteriorating terms of trade, which would reduce GDP growth in New Zealand. That could lead to a fall in household income, which would lead to lower house prices sap consumer demand and growth, it said.

If that downside scenario occurred, the IMF estimates it will trim half a percentage point from 2012 GDP growth and 1 percentage point in 2013.


Add a comment

Bookmark and Share


English to IMF and World Bank this week

5 Oct 2015 News
New Zealand Government Hon Bill English Minister of Finance 5 October 2015 Media Statement English to IMF and World Bank this... more

Six banks awarded All-of-Government contracts

5 Oct 2015 News
5 October 2015   Six banks awarded All-of-Government contracts Minister of Finance Bill English and Economic Development... more


NZ government seeks to double private sector R&D by 2025

5 Oct 2015 Business News
Article - BusinessDesk   NZ govt science plan seeks to double private sector R&D by 2025 By Paul McBeth Oct. 5... more

NZX 50 books worst quarter since 2012 amid global fears

2 Oct 2015 Business News By Suze Metherell
  NZX 50 books worst quarter since 2012, as global fears weigh on stocks Oct. 2 (BusinessDesk) - New Zealand stocks booked... more


Popularity of new guide fuelled by pedal power

28 Sep 2015 Lifestyle
New Zealand Automobile Association Media Release: 28 September 2015 Popularity of new guide fuelled by pedal power New Zealanders... more

Whittaker’s ‘unbeatable’ as NZ’s most loved brand

21 Sep 2015 Food & Wine
The All Blacks may have a shot of becoming the first team ever to win consecutive Rugby World Cups but they can’t top a... more


Chinese property investors disappearing from the auction room

28 Sep 2015 Property
Chinese property investors are rapidly disappearing from the auction room, says the boss of Auckland's biggest real estate... more

Auckland house sales climb to 15-yr high for month of August

3 Sep 2015 Property By Paul McBeth
Article - BusinessDesk   Auckland house sales climb to 15-year high for month of August, prices stall Sept. 3 (BusinessDesk) -... more


NZ's annual net migration reaches record 60,300 in August

21 Sep 2015 Migration
  NZ's annual net migration reaches record 60,300 in August on Indian, Chinese students By Jonathan Underhill Sept. 21... more

NZ – Filipino Arrangement on migrant workers

18 Sep 2015 Migration
New Zealand Government NZ – Filipino Arrangement on migrant workers Workplace Relations and Safety and Immigration Minister... more


Winter holiday makers drive visitor growth

28 Sep 2015 Travel & Tourism
An increase in overseas visitors seeking a winter break resulted in an additional 10,000 holiday arrivals to New Zealand in August, as... more

Smartpay forecasts second year of earnings decline

8 Sep 2015 Travel & Tourism
Article - BusinessDesk   Smartpay forecasts second year of earnings decline By Tina Morrison Sept. 8 (BusinessDesk) - Smartpay... more


Silver Ferns trials underway

5 Oct 2015 Netball
Trials are underway in Auckland for the Silver Ferns team to contest the New World Netball Series for Constellation Cup. The lure... more

Two of NZ football’s greatest players are to be honoured

5 Oct 2015 Football
Two of New Zealand football’s greatest players are to be honoured by their peers at a celebratory dinner in Auckland next... more


Gordon Campbell on the TPP countdown, & Mary Margaret O’Hara

5 Oct 2015 Opinion
Column - Gordon Campbell   Gordon Campbell on the TPP countdown, and Mary Margaret O’Hara While Australia and the US have... more

Gordon Campbell on TPP dairy , and investor-state disputes

28 Sep 2015 Opinion
Column - Gordon Campbell   Gordon Campbell on New Zealand’s TPP done deal on dairy, and on investor-state disputes For... more

Kiwi Success

Fonterra director Farrelly replaces Norris on Fund board

23 Sep 2015 Appointments By Paul McBeth
Fonterra director Ian Farrelly replaces Ralph Norris on shareholders' fund board Sept. 23 (BusinessDesk) - Fonterra Cooperative... more

Honouring New Zealand’s best on and off the field

23 Sep 2015 People
As a group of special Kiwis compete for the Rugby World Cup title, Kiwibank is calling on New Zealanders right here to honour their... more


'Close to zero' chance of another bum hire: FMA's Everett

2 Oct 2015 Recruitment By Fiona Rotherham
  'Close to zero' chance of another bum hire, says FMA's Everett Oct. 2 (BusinessDesk) - Financial Markets Authority chief... more

More action needed to reduce Gender Pay Gap

2 Oct 2015 Recruitment
New Zealand Government Hon Louise Upston Minister for Women   2 October 2015 Minister for Women Louise Upston says she is... more