Finance Minister Bill English has warned that New Zealand risks the same rough treatment from the bond markets that have hit Greece and Spain in recent months if it doesn't push hard to get its foreign debt under control and transform the economy.
So-called bond vigilantes have forced heavily indebted European nations to slash budget spending and increase taxes to control their deficits, largely by pushing up market interest rates for government bond issues.
English told Interest.co.nz in a Double Shot Interview (3 minutes 40 seconds) that New Zealand had not done enough to keep the bond vigilantes happy.
"Our vulnerability to those grumpy debt markets is actually growing over the next four or five years," English said.
"Our net external liabilities will move from about NZ$170 billion to somewhere up to NZ$240 billion to NZ$250 billion, close to 100% of GDP. That's going to be driven significantly by government borrowing, whereas in the last decade it's been driven significantly by private borrowing and private debt," he said.
"On the fiscal side, we've still got a fairly significant stimulus. We've got a fairly large deficit in this next year. We've got a track that shows it improving, but we really do need to ensure that that improving track is locked in by actual decisions, not just by assumptions," he said.
"The government has got a lot of work to do just to get the public sector to fit what we've already got built into the forecasts."