 If New Zealanders are spending more overseas than they are earning, what has happened to the amount we owe as a nation overseas?

Study the above table and make 3 comments about New Zealand’s overseas debt. You may complete this in pairs.

 What is the private sector borrowing money for?  The debt arises from two major sources  Banks borrowing to fund investments in housing, and our spending on credit  Business’s borrowing to invest in capital goods Which of these two sources of borrowing do you think will most likely be repaid back in the future?

 Business’s only borrow money for an investment if it was likely to earn a return > the cost of borrowing.  Why do we need to borrow $ from overseas?  Think about the circular flow diagram. Where does the investment $ come from?  We need to borrow these sums of money overseas because as a nation we save too little. Therefore banks have little choice but to borrow the money they need for domestic borrowers from overseas sources.

 Article

 Low net foreign assest position. Nzlanders owe a lot overseas but don’t own a lot of assets overseas.

 High Current account deficits are associated with  Average levels of investment  Low saving levels.  The Economic uncertainty has increased Saving levels but these are expected to be temporary  An increase in saving levels is needed.

 The International Investment Position (IIP) records the balances of the assets and liabilities held by New Zealanders overseas and the assets and liabilities held in NZ by overseas residents.  At the moment we have a lot of liabilities overseas and not many assets.  This means NZ’s IIP is not looking very good at the moment.