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New Zealand's 18-month long recession has left a huge hole in the government's balance sheet with the Crown accounts for the year showing a $10.2 billion deficit. But is it as bad as it sounds?
The government on Wednesday posted a $10.5 billion loss - its first deficit in a decade, and its biggest deficit on record.
Gareth Kiernan, managing director at economic forecaster Infometrics, says while the deficit is huge, in the global context New Zealand is not faring as poorly as some governments that are burdened with massive bailout packages to keep their economies afloat.
There are also signs that the fortunes are turning around for government investments hit hard by the recession.
Kiernan says the New Zealand Superannuation Fund's year-on-year return was down more than 25% but in the last three months there has been a 10-11% rise in the value of investments.
The government is grappling with ACC funding, Kiernan says, and there are other write-offs.
"But in terms of overall government spending, it's probably reassuring that it's in line with what they predicted back in May, so it hasn't got any worse and for a while that was the only direction it was heading," he says.
The government in May forecast a full-year deficit of $9.3 billion.
Nevertheless, Finance Minister Bill English says New Zealand will have to borrow $40 billion over the next four years - around $250 million a week for the next 200 weeks - to service its debt and keep the economy running.
Kiernan believes English is trying to condition expectations around government spending going forward in order to deliver a cautious Budget next year.
In the meantime, Kiernan says raising finance from the international markets should be achievable in the short term.
"We've seen government bond rates around the world hold reasonably low given the amount of government debt that has been coming on," he says.
However, Kiernan says this could change in the medium term if there is upward pressure on bond rates and financing costs for the government.
Kiernan expects the government's fiscal policies over the next year to be slightly more stimulatory as the debt gets bigger into 2010, and says this will add momentum to the economy as it emerges from the economic downturn.
