Sunday, March 24, 2024

Dr Bryce Wilkinson: The mystery of the $52 Billion "Gift"

My research note last week highlighted a massive mystery. Between 31 March 2009 and 30 September 2023, New Zealanders spent $158 billion more overseas than we earned on current account.

We needed $158 billion of incoming capital to fund that deficit spending. We would expect our net borrowing overseas to be of a similar magnitude.

However, Statistics New Zealand could only identify a funding inflow of $106 billion. SNZ does not know where the other $52 million came from. Neither do we. SNZ attributes it to “errors and omissions”.

My research note, “The mystery of the $52 billion gift: Does New Zealand have a fairy godmother”, documented this in detail.

This mystery raises some concerning questions. Is New Zealand’s true indebtedness much higher than we think? Are the deficit estimates too high, or have we borrowed a lot more than SNZ has been able to measure?

The relatively small $32 billion decline in New Zealand’s net international investment position is a related puzzle. This position measures how much more we owe overseas than overseas owes us. The $32 billion decline accounts for only a third of the $106 billion of funding SNZ knows about. Where did the other $74 billion come from?

It turns out that $27.6 billion of the $74 billion came from capital inflows largely attributable to insurance payouts by global reinsurers. These can be triggered by major natural disasters, such as the Christchurch earthquakes. Obviously, this is not a reliable long-term funding source.

The remaining $46.6 billion of the $74 billion came from valuation gains, such as the recent rise in global interest rates that reduced the market value of our overseas debt. We cannot count on such favourable valuation gains in future.

The mystery became more prominent after Covid-19, when New Zealand's current account deficits ballooned due to the loss of tourism and international student income. Almost half of the $62 billion in deficits from December 2021 to September 2023 was 'funded' by the mysterious "errors and omissions."

Interestingly, Australia’s statistics don’t have the same issue. This mystery is specific to New Zealand.

My report calls for SNZ to investigate and resolve this statistical discrepancy. New Zealand may be in a much deeper hole of overseas debt than we realise. Figuring out this $52 billion mystery should be more of a priority.

Dr Bryce Wilkinson is a Senior Fellow at The New Zealand Initiative, Director of Capital Economics, and former Director of the New Zealand Treasury. His articles can be seen HERE. - where this article was sourced.


DeeM said...

SNZ's befuddlement on this issue may show what happens when you use inclusivity rather than merit to appoint people to an organisation.
A bunch of multi-ethnic, multi-gender employees who know bugger all about statistics and how to analyse them. But hey, they know what their multi-iwi affiliations are and where they sit, or not, on the gender-fluid spectrum.

These days that's all that matters.

Anonymous said...

A rich field of cost saving for the coalition Govt.
But do they even realize.

CXH said...

'SNZ attributes it to “errors and omissions.' Only a government dept could put down 30% of the billions it is meant to be tracking as errors and omissions and still have a job.

Barend Vlaardingerbroek said...

Spot on, DeeM (above).
Add to that the bending of rules and lowering of standards to avoid having to fail some of these goons during training, which would be interpreted as a symptom of racism/sexism/whateverism. Beware the hand that holds the scalpel if the surgeon was the beneficiary of an affirmative action quota. Beware the plane you are on if an AA political appointee is in the control tower.

Anonymous said...

The $52 Billion gift with no strings attached. Manna from heaven. NZ has been blessed.