NZDMO to borrow net NZ$17.9 bln for government over next 5 years, mostly in 2013/14; inflation indexed bonds delayed until next year

NZDMO to borrow net NZ$17.9 bln for government over next 5 years, mostly in 2013/14; inflation indexed bonds delayed until next year

The New Zealand Debt Management Office (NZDMO) has updated its borrowing plans for the next five years after the Treasury forecast in its Pre-Election Fiscal and Economic Update that the government was on track to be in surplus by 2014/15.

The NZDMO said it had kept its bond issuance programme for the current 2011/12 year at a gross total of NZ$13.5 billion and a net NZ$5.9 billion of new bonds after the refinancing of maturing bonds.

Gross bond issuance in 2012/13 would be NZ$12 billion with net issuance of NZ$1 billion. Gross issurance of NZ$10 billion in 2013/14 would be the same as net issurance.

Gross issuance in 2014/15 would be NZ$8 billion, with a net repayment forecast of NZ$2.0 billion that year. There would be net issuance of NZ$3.0 billion in 2015/16 and gross issuance of NZ$5 billion.

This meant total gross issuance over the five forecast years would  be NZ$48.5 billion, while net extra debt would be NZ$17.9 billion.

The NZDMO said its NZ$20 billion of pre-funding in 2010/11 meant the government had covered any additional costs linked to the Christchurch earthquake.

The NZDMO borrowed NZ$900 million last week and a record equalling NZ$1 billion in late September.

The NZDMO also said "due to uncertain global market conditions" the issuance of a 20 September 2025 inflation indexed bond was more likely to be undertaken in the second half of the current 2011/12 fiscal year.

It said the maximum tranche size for bonds maturing on April 15, 2013 and April 15, 2015 would be increased from NZ$10 billion to NZ$12 billion, "consistent with longer nominal bond maturities."

See our profile for the April 15, 2013 government bond here and see our profile for the April 15, 2015 bond here.


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Let's have us a table showing what is refi and what is new...all in real dollar terms allowing for the debasement programme. Then we get to 'see' the assumptions!

Punters need to figure out where English will get the surplus from to begin to pay down the debts.


One of the most perplexing questions associated with this process is "Where does the money come from to pay the interest?" If you borrow $10,000 from a bank at 9%, you owe $10,900. But the bank only manufactures $10,000 for the loan. It would seem, therefore, that there is no way that you - and all others with similar loans - can possibly pay off your indebtedness. The amount of money put into circulation just isn't enough to cover the total debt, including interest. This has led some to the conclusion that it is necessary for you to borrow the $900 for the interest, and that, in turn, leads to still more interest. The assumption is that, the more we borrow, the more we have to borrow, and that debt based on fiat money is a never-ending spiral leading inexorably to more and more debt.

This is a partial truth. It is true that there is not enough money created to include the interest, but it is a fallacy that the only way to pay it back is to borrow still more. The assumption fails to take into account the exchange value of labor. Let us assume that you pay back your $10,000 loan at the rate of approximately $900 per month and that about $80 of that represents interest. You realize you are hard pressed to make your payments so you decide to take on a part-time job. The bank, on the other hand, is now making $80 profit each month on your loan. Since this amount is classified as "interest," it is not extinguished as is the larger portion which is a return of the loan itself. So this remains as spendable money in the account of the bank. The decision then is made to have the bank's floors waxed once a week. You respond to the ad in the paper and are hired at $80 per month to do the job. The result is that you earn the money to pay the interest on your loan, and - this is the point -the money you receive is the same money that you previously had paid. As long as you perform labor for the bank each month, the same dollars go into the bank as interest, then out the revolving door as your wages, and then back into the bank as loan repayment.

It is not necessary that you work directly for the bank. No matter where you earn the money, its origin was a bank, and its ultimate destination is a bank. The loop through which it travels can be large or small, but the fact remains all interest is paid eventually by human effort. And the significance of that fact is even more startling than the assumption that not enough money is created to pay back the interest. It is that the total of this human effort ultimately is for the benefit of those who create fiat money. It is a form of modern serfdom in which the great mass of society works as indentured servants to a ruling class of financial nobility.  

Borrow and Hope