Geoff Bascand: New Zealand's net foreign liabilities - what lies beneath, and ahead?

Speech by Mr Geoff Bascand, Deputy Governor and Head of Operations of the Reserve Bank of New Zealand, to MOTU, at the Royal Society of New Zealand, Wellington, 17 July 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

New Zealand's net foreign liabilities (NFL) - what we owe the rest of the world, broadly speaking - reached nearly 85 percent of GDP at the start of 2009. Eight years later, they sit at 58.5 percent of GDP, their lowest level since the late-1980s (figure 1). Today I'm going to put this improvement into some international and domestic context. I'll discuss some of the reasons for the improvement, and offer some thoughts on how sustainable the improvement might be.

What are 'net foreign liabilities', and why should New Zealanders care about them? Essentially, one can think of NFL as being New Zealand's net external debt. NFL are the difference between what we owe the rest of the world (our liabilities) and what the rest of the world owes us (our assets). These assets and liabilities include equity (direct investment in companies, for example) and debt (e.g. loans), but in New Zealand's case in net terms they are largely made up of debt (55 percent of GDP). NFL change through our transactions with the rest of the world and through revaluations of the stock of assets or liabilities (figure 2 provides an overview of these dynamics). Most of our international transactions are through the current account, which essentially reflects the difference between what people in New Zealand save (current income less current expenditure) and invest. Nationally, we've invested more than we've saved, with the difference being met by the savings of non-residents. This has accumulated into a large NFL position over several decades.