BUDGET 2013: Debt Management Office trims $3 billion from borrowing programme

The New Zealand Debt Management Office will cut its borrowing programme by $3 billion over the next two years as the government looks to clamp down on its growing interest bill and build a buffer for future shocks.

The DMO will cut its short-term Treasury bills on issue by $1 billion in the 2013/14 financial year and will reduce bond issuance by $2 billion the following year, the department said in a statement. The office expects net borrowing of $9 billion in the current financial year, a $3 billion reduction next year, and net issuance of $5 billion and $7 billion the following two years.

The government department will focus on extending the duration of the Crown's debt portfolio, and is mulling launching two longer-dated bonds as art of this year's programme. Maturities being considered are an April 2027 and a September 2030 inflation-indexed bond.

New Zealand debt has been an attractive option for foreign investors, with higher yields on offer in a global environment of low interest rates. Reserve Bank figures this week showed non-resident holdings of government securities were at 66 percent last month, the highest proportion since November 2008.

The government's net debt is forecast to rise to $70.3 billion, or 27 percent of GDP, at the end of the 2017 year, from $57.9 billion in 2013. It expects to show a cash surplus of $1.8 billion in the 2016 year, though after capital requirements it will be in a residual cash deficit through the forecast period.

"This year we're paying interest on our debt of $3 billion," Finance Minister Bill English said in a briefing in Wellington. "We need to lower our debt to absorb the chance of another shock."

(BusinessDesk)