Govt bond sales to decline, debt peaks in 2015

The Government says the $380 million a week of net new debt it is raising each week will fall to $100 million next year and by 2014/15 it will be repaying money back.

The statement made early on in Finance Minister Bill English's budget speech reinforced the message that he was delivering a balanced and responsible budget in an election year. His plan to get back to surplus faster has ramifications for financial markets that trade government debt.

The Government will sell fewer bonds next financial year and beyond mostly because it has taken the opportunity to sell a massive amount of bonds this year to more than fund its record budget deficit.

While the rising level of government debt has been a big story, the Government has had no trouble raising the money by selling bonds because New Zealand sovereign debt is highly regarded in financial markets compared to debt instruments sold by some European governments.

The $20 billion of bonds the Government will have sold by the end of June 30 this year is about $5 billion more than it needs. The Government has therefore taken the opportunity of strong demand for its bonds to pre-fund future deficits.

The bond programme will fall to $13.5 billion in the year to June 30, 2012. The Government is not saying if it will continue to sell more bonds than it needs to if demand for its bonds remains strong.

The New Zealand Debt Management Office, which manages the Government's funding needs, today signalled the introduction of a new bond maturing in 2023 and said it is committed to continuing to issue 2025 inflation-indexed bonds.

The bond tender programme, the Government's main funding source, falls to $12b in the 2012/13 year, to $10b in the 2013/14 year and to $8b in 2014/15.

In the budget, net core Crown debt is now projected to peak at 29.6 percent of gross domestic product (GDP) in 2014/15 and then decline steadily. Debt would have peaked at 27.5 percent of GDP in the absence of the earthquakes in Christchurch.

"Looking further ahead, continuation of current policy would see net debt eliminated entirely by 2024," Finance Minister Bill English said.

The Government is also going to sell Canterbury Earthquake Kiwi Bonds to retail investors. It has not said yet what interest rate they will pay.