A higher than expected New Zealand dollar and strong demand for government debt, has pushed the Crown's gross debt in the ten months to April 4.2% higher than Treasury expected in its latest set of forecasts.
Overall, the Government's financial statements for the ten months to April 30 were close to the latest forecasts released in the May 19 Budget, Treasury said this morning. Core Crown revenue in the ten month period stood at NZ$46.4 billion (0.2% below forecast), with Core Crown tax revenue at NZ$42.3 billion (also 0.2% lower than anticipated).
Core Crown expenses of NZ$56.3 billion were 0.9% or NZ$525 million below forecast, with most departments continuing to report some under expenditure against their forecasts, Treasury said.
The operating balance deficit before gains and losses, at NZ$10.9 billion, was 3.6% smaller than expected largely as a result of the lower than forecast expenses.
"The deficit is forecast to grow by NZ$5.8 billion in the next two months to NZ$16.7 billion by 30 June. The growth in the deficit is largely a result of sharp increases in forecast expenses, most notably earthquake related costs, the weathertight homes assistance package and costs associated with the ETS [Emissions Trading Scheme]. There is some risk in both the timing and quantum of these expenses," Treasury said in a release.
Treasury said gross Crown debt was NZ$2.9 billion or 4.2% higher than forecast due to a number of factors, the most significant of which were:
- Considerable valuation movements as a result of higher than forecast exchange rates. The New Zealand exchange rate has been at or near record highs recently which caused derivative liabilities to be NZ$824 million greater than expected and also contributed to derivative asset values being significantly above forecast, which required increased collateral of NZ$759 million to hedge this risk
- Treasury bills’ issuance also remaining ahead of forecast (by $751 million) due to stronger than anticipated demand.
"At NZ$71.6 billion or 36.8% of GDP, gross debt was NZ$19.6 billion higher than the same time last year. As a result of the higher debt position, finance costs for the ten months ended 30 April 2011 were $559m higher than in the same period last year," Treasury said.
"The movements in gross debt were net debt neutral meaning that at 30 April 2011, net debt was close to forecast at NZ$41.5 billion, or 21.3% of GDP."
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