If New Zealanders are spending more overseas than they are earning, what has happened to the amount we owe as a nation overseas?
Study the above table and make 3 comments about New Zealand’s overseas debt. You may complete this in pairs.
What is the private sector borrowing money for? The debt arises from two major sources Banks borrowing to fund investments in housing, and our spending on credit Business’s borrowing to invest in capital goods Which of these two sources of borrowing do you think will most likely be repaid back in the future?
Business’s only borrow money for an investment if it was likely to earn a return > the cost of borrowing. Why do we need to borrow $ from overseas? Think about the circular flow diagram. Where does the investment $ come from? We need to borrow these sums of money overseas because as a nation we save too little. Therefore banks have little choice but to borrow the money they need for domestic borrowers from overseas sources.
Low net foreign assest position. Nzlanders owe a lot overseas but don’t own a lot of assets overseas.
High Current account deficits are associated with Average levels of investment Low saving levels. The Economic uncertainty has increased Saving levels but these are expected to be temporary An increase in saving levels is needed.
The International Investment Position (IIP) records the balances of the assets and liabilities held by New Zealanders overseas and the assets and liabilities held in NZ by overseas residents. At the moment we have a lot of liabilities overseas and not many assets. This means NZ’s IIP is not looking very good at the moment.
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