Direct Public Debt(1)

(1) The debt figures in this section are presented in nominal dollars and relate solely to the core Crown entity. In this respect, they will differ from the sovereign-issued debt figures as disclosed in the Crown Financial Statements of New Zealand. The latter are presented in accordance with generally accepted accounting practice and include debt issued by the Reserve Bank of New Zealand.

Debt Management Objectives

During 1988, as part of the reform of the government's financial management, the New Zealand Debt Management Office (NZDMO) was formed to improve the management of risk associated with the government's fixed income portfolio, which comprises liabilities in both the New Zealand and overseas markets and some liquidity assets. The categories of risk managed are: market, credit, liquidity, funding, operational and concentration risk.

In 1988, the NZDMO introduced reforms of the public sector's cash management involving centralisation of surplus cash funds for investment and cash management purposes, and decentralisation to departments of the responsibility for payments and other banking operations.

The separation of the government's financial management from monetary policy enables the NZDMO to focus on defining a low-risk net liability portfolio for the Government and implementing it in a cost-effective manner.

Prior to March 1985, successive governments had borrowed under a fixed exchange-rate regime to finance the balance of payments deficit. Since the adoption of a freely floating exchange rate regime, the government has borrowed externally only to rebuild the nation's external reserves and to meet refinancing needs.

Direct public debt decreased by a net amount of $4,309 million including swaps between 1 July 2006 and 30 June 2007. This decrease consisted of a net decrease in internal debt of $1,241 million and a net decrease in external debt of $3,068 million.

As of 30 June 2007, 5% of the interest-bearing direct debt of the government was repayable in foreign currencies. The quantifiable contingent liabilities of the government, including the Reserve Bank of New Zealand, State-Owned Enterprises and Crown Entities, amounted to approximately $5,246 million.

Under existing legislation, amounts payable in respect of principal and interest upon New Zealand securities are a charge upon the public revenues of New Zealand, payable under permanent appropriation. All of the indebtedness of New Zealand is otherwise unsecured.

Debt Record

New Zealand has always paid when due the full amount of principal, interest and amortisation requirements upon its external and internal debt, including guaranteed debt.

Summary of Direct Public Debt

Funded and Floating Debt

The following table sets out the direct funded and floating debt of the government on the dates indicated. Funded debt is indebtedness with an original maturity of one year or more and floating debt is indebtedness with an original maturity of less than one year. Funded debt, and therefore total direct debt, includes swap transactions.

Total direct debt includes a net swap payable ($215.8 million at June 2007) with offsetting impacts on internal and external funded debt. Swap transactions, which are included in almost all the following public debt tables, increase external funded debt and reduce internal funded debt in 2007.

(1) Includes the effect of swap transactions. Excludes indebtedness to international financial organisations arising from membership.

(2) Includes Government Wholesale Bonds, Kiwi Bonds, Index-Linked Bonds.

(3) External debt is converted at the mid-point of the 3:00 P.M. spot rate on 30 June for each year.

(4) Includes Public Bonds, Private Placements, Syndicated Loans, and Medium Term Notes.

(5) Treasury Bills and Reserve Bank Bills.

(6) Includes Sovereign Notes and Euro-Commercial Paper.

(7) GDP: Treasury Estimate for June years.