Budget 09: Govt to sell more bonds to fund deficits

The Government will sell a record amount of bonds to fund its deficit next year but the amount is less than some market commentators predicted.

The Government's Debt Management Office (DMO) today signalled the sale of $8.5 billion of bonds in the year to June 30, 2010. This is the largest nominal amount of bonds sold in a year by a New Zealand Government, but less than the $10b predicted by some commentators. The so-called bond programme has been larger as a percentage of gross domestic product in the past.

Bond sales in the current financial year are expected to total $5.5b, which is higher than the figure announced in the budget last year.

Governments across the world have undertaken massive bond sale programmes to fund deficits resulting from bailouts and an erosion of government accounts during the global economic downturn. In the UK, auctions of government bonds, known as gilts, have failed.

In New Zealand in past years the Government has sold more bonds than it needed to fund deficits to keep the local government bond market liquid, which has resulted in a build up of financial assets. These financial assets can be run down.

The $8.5b bond programme in the 2009-10 year compares with a cash deficit of $11.86b. The bond programme rises to $11.5b in the 2010-11 year and $15b in the 2011-12 year.

The Government also sells treasury bills, which have maturities of less than a year.

The DMO said it expected to issue a range of maturities of treasury bills totalling around $500 million a week.

"The majority of the borrowing requirement will be met through the issuance of bonds in the New Zealand domestic market," today's budget documents said.

Bond issuance totals $54.8b over the forecast period. When maturing bonds are taken into account the net issuance over the forecast period was about $36b.

Issuance in offshore markets by the Government was an option, but not one signalled today. Private sector debt is funded in part by banks borrowing offshore. The Government said today that its foreign currency borrowing would depend on the relative cost to New Zealand dollar denominated domestic issuance.

"We believe borrowing at this time is entirely appropriate," said Finance Minister Bill English.

Click here for the Budget documents

- NZPA