WELLINGTON, July 17 (Xinhua) -- A large improvement in New Zealand's net foreign liabilities (NFL) as a share of GDP since 2009 makes the economy less vulnerable to shocks, New Zealand Reserve Bank Deputy Governor Geoff Bascand said in a speech on Monday.
New Zealand's NFL -- what the country owes to the rest of the world -- reached nearly 85 percent of GDP at the start of 2009 but now they are down to 58.5 percent of GDP, their lowest level since the late-1980s, Bascand said.
"New Zealand has become less reliant on offshore funding over the past decade, and the maturity of bank borrowing has lengthened, reducing the risks from a potential funding shock," he said, adding that the liquidity policy introduced by the Reserve Bank in 2010 had contributed to this improvement.
The decline in New Zealand's NFL partly reflects low global interest rates that have reduced the interest payments on New Zealand's overseas debt, and high equity prices that have boosted the value of the country's overseas assets, Bascand said.
More significantly, a better balance between national saving and investment during the current economic expansion has helped contain the current account deficit and lowered the ratio of NFL to GDP, he said.
"Although some of the macroeconomic factors that have driven the improvement in our NFL position are potentially more transient or fortuitous than others, the higher domestic saving and financing of investment augurs well for the durability of the current growth phase," he added.
However, Bascand warned that New Zealand's NFL as a share of GDP is still relatively high internationally, especially given the country's exposure to commodity exports that can be subject to large price swings.
Significant uncertainty remains regarding household behavior and the contribution of the sector to New Zealand's saving-investment gap, and the extent that banks as intermediaries might increase their reliance on offshore funding, Bascand said.
"Borrowing from the rest of the world isn't automatically 'bad.' It can be a good thing if it leads to productive investment that enhances our economic performance and leads to high per-capita incomes over time, but debt-fueled consumption is less sustainable," he said.
Much of the investment undertaken by the household sector is in the form of new house builds and renovations to existing homes, said the deputy governor, adding that "if housing demands cannot be met by increased household sector or domestic saving more broadly, it will be reflected in a deterioration in our NFL position."
Bascand said that banks have recently begun to compete more aggressively for deposits and tighten lending standards, which should help alleviate offshore funding pressures and prevent a significant increase in NFL.
