“The increase in the borrowing requirement could be smaller if tax cuts have been scaled back or spending control is assumed to be tighter than we have assumed. But it could also be larger if Treasury’s growth forecasts are revised down more than we have assumed,” the bank said.
Westpac senior economist Darren Gibbs said the market is expecting another $10b to $15b increase over the next four years.
“If we get something that’s in that window, then I don’t think that that’s going to be a problem for the market,” he said.
However, anything wildly outside that would be an issue.
The Government’s borrowing requirement, before the onset of Covid-19 in 2020, looks puny compared with what’s coming up.
In the fiscal update in December 2019, just a month before the outbreak, NZ Debt Management outlined plans to raise a total of $42b over the ensuing five years, starting with a meagre $10b bond programme for fiscal 2020.
“These days, churning out $38-40b bond programmes in a year seems to be doable,” Gibbs said.
In terms of pricing, Gibbs said bond traders appeared to be more concerned about the Reserve Bank’s next change in its Official Cash Rate, and the monetary policy stance of the US Federal Reserve, than the prospect of more supply coming on stream.
“The market is very aware of the supply that is coming on tap from ongoing fiscal deficits, but I don’t think that’s the key driver.
“There are two real issues. One is the size of the programme and how the market can absorb it.
“The other is getting our heads around how the Reserve Bank is likely to view the Budget, and what that means for the way they are thinking about the economy and inflation,” Gibbs said.
“Does it make it less likely or more likely that policy easings are more likely sooner or later?”
Economists said Crown debt was likely to remain above the Government’s long-term goal of 20-40 per cent of GDP.
New Zealand’s current debt-to-GDP ratio of 44 per cent of GDP is around the same as it was in the mid-1990s and small by some standards.
In the US, the ratio is 120 per cent and it’s around 100 per cent in the UK.
ANZ expects to see a $10b lift in the bond tender programme over the forecast period.
“The increase in the borrowing requirement could be smaller if tax cuts have been scaled back or spending control is tighter than we have assumed.” the bank said.
“But it could also be larger if Treasury’s growth forecasts are revised down more than we have assumed.”
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
