Government borrowing slashed by a third

3.10pm

Healthy surpluses have enabled the Government to cut next year's borrowing requirements by a third, today's budget reveals.

The Government announced a domestic debt programme for 2002/03 of $3.4 billion, much lower than its previous December forecast of $5.07 billion in the wake of the September 11 attacks.

More recently, finance markets had revised their expectations to $3.8 billion to $4.5 billion.

But today, the Government revealed that its operating surplus for the current financial year was running at $2.63 billion, more than double the December forecast. A surplus of $2.28 billion for 2002/03 would lower gross debt to 28.6 per cent of GDP, from 36.8 per cent when the Government was elected.

A hint that the Government's borrowing requirement would be significantly less than expected came last night from Finance Minister Michael Cullen.

He signalled to finance planners that borrowing in the short-term would be lower.

"There is still a big buying programme for 2003/04 but I bet you by the time I get there it won't be as big," Dr Cullen told NZPA.

This year's 2001/02 bond programme has also been reduced by $350 million to $3.75 billion as a result of better forecasts for the Crown's cashflows. As a result, tender number 187 -- scheduled for June 20 this year -- has been cancelled, the Government said.

Domestic bond programme forecasts to 2006 are: 2003, $3.4 billion; 2004, $5.559 billion; 2005, $3.933 billion; 2006, $3.822 billion.

The rise in forecasted debt to $5.6 billion in 2003/04 was "somewhat larger than was experienced through most of the 1990s," the Goverment said, but it reflected the timing of its capital spending plan.

In that year, there would be substantial spending on defence equipment and relatively higher financing requirements of existing Crown debt in the private sector.

"However, the nominal increases should be viewed in context with the relative size of the economy. Growth in the New Zealand economy means that the $5.6 billion debt programme is forecast (in 2003/04) to be much smaller relative to GDP (4.3 per cent) than was the case in 1991/92 (9.2 per cent) when the doemstic debt programme amounted to $6.8 billion."

Next year's debt programme will consist of 12 nominal bond tenders.

Treasury's debt department, the New Zealand Debt Management Office, plans to undertake transactions in the New Zealand swap market when the Crown can achieve cost savings on its domestic and foreign borrowing.

- NZPA

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