By Gareth Vaughan
The New Zealand Debt Management Office (NZDMO) has confirmed it will issue the equivalent of about NZ$4,500 worth of debt for every New Zealander this financial year.
The government's debt manager said today it was lifting the 2010/11 domestic bond programme by NZ$3.5 billion to a maximum of NZ$20 billion. This is the equivalent of around 10% of GDP.
The programme has now been lifted by NZ$6.5 billion since March 30 with today's increase the third since then, with NZ$1.5 billion increases announced in both March and April, after a NZ$13.5 billion annual programme was set last December.
NZDMO Treasurer Philip Combes cited three reasons for the latest increase:
The programme size is now much larger than the forecast cash deficit for 2010/11, enabling pre-funding in favourable market conditions.
It reduces borrowing programmes in future years.
It ensures that the market has continuity of supply by providing for average issuance of around NZ$400 million a week for the next two months.
Based on New Zealand's population of 4.4 million, NZ$20 billion dollars would be about NZ$4,500 per man, woman and child.
Combes said recent demand had been very strong for government debt.
“We announced significant revisions to the bond programme on 30 March and 12 April but the extra supply has been easily absorbed by investors,” said Combes.
“Despite recent events, the rapid pace of bond issuance has built up our cash holdings to record levels. Consequently, it is most unlikely that there will be any further increases to this year’s programme” he added.
The NZDMO will announce the 2011/12 bond programme in conjunction with the Government’s May 19 Budget.
Analysts at the ANZ predicted in early April that the NZDMO could increase this year's programme to NZ$20 billion as it soaks up strong investor demand and raises money to help rebuild Christchurch after the devastating February 22 earthquake.
A spokesman for Finance Minister Bill English said the increase was an operational matter for the NZDMO.
Prime Minister John Key said although he was not happy about the level government was having to borrow, the increase reflected the fact the Christchurch earthquake in February had a significant impact on the government's books.
"When you get to see the budget on May 19, Treasury is doing quite a lot of work to separate out what the effect of the earthquake has been, and [it is] probably better we have that discussion when all the facts are on the table," Key told media in Parliament this evening.
The extra NZ$6.5 billion of borrowing announced in the last 5 weeks is equivalent to NZ$185.7 million per day, or NZ$7.738 million per hour, or NZ$128,968 per minute, or NZ$2,149 per second.
The NZDMO last month issued NZ$1 billion worth of debt in a single bond tender, its biggest ever one-off issue.
(Updated with PM Key's comments, Finance Minister's reaction, Interactive chart of government debt)