Reserve Bank Governor Alan Bollard says more household belt-tightening and a stronger switch by banks away from unproductive personal credit growth are necessary if NZ’s ongoing risk of economic shocks caused by the country’s high foreign indebtedness is to improve. He says the Govt’s books are in good order, but when only the external accounts are taken into account, New Zealand shifts dramatically to the risky end of the spectrum, sitting seventh most fragile, with Aust - also a high current account deficit economy - at sixth.

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Bollard says there is a lot which can be and is being done to improve the situation, like designing fiscal and tax policy to reduce vulnerabilities, putting in place cautious bank regulation, and improving access to a range of investment opportunities. “Ultimately, however, it is up to NZers to improve the quantity and quality of household savings.” But he says one of NZ’s prime problems is low savings rates, with very limited financial savings and stocks and shares. Overwhelmingly, household assets are invested in housing and other property.

He warns in the end either the markets will penalise us by requiring a larger premium for its continued funding, and/or the sheer size of servicing our obligations will become an intolerable burden to the country. “Rather than await such painful punishments, we should be looking to improve the situation.”

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