Home > Fiscal Policy > New Zealand’s Foreign Debt Servicing

New Zealand’s Foreign Debt Servicing

Lower interest rates has a positive effect on debt servicing costs. As a % of exports foreign debt servicing has fallen from 20.8% in 2007 to 10.6% at the start of 2013. However there is concern about the longer term effects of lower interest rates and the impact it will have on the housing market in NZ. If the CPI is pushes up towards the 3% the RBNZ may be forced to increase interest rates which influences the strength of the NZD and debt servicing. Furthermore, because net debt continues to increase indefinitely in the historic trends scenario, financing costs also increase exponentially. Below are graphs showing NZ’s debt servicing costs and explaining the debt spiral.

Foreign debt servicing

Debt spiral

Categories: Fiscal Policy Tags: , ,
  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: