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Note 33: Financial Instruments

The Government has devolved responsibility for the financial management of its financial portfolios to its sub-entities such as NZDMO, Reserve Bank, NZS Fund, Inland Revenue and ACC. The financial management objectives of each of these portfolios are influenced by the purpose and associated governance framework for which the portfolio is held. The purposes of a portfolio may cover:

  • public policy considerations eg, the provision of student loans to support tertiary education policy
  • liquidity management eg, Treasury bills and Government Stock are the primary debt instruments for funding core Government operations, and
  • long-term economic return eg, the function of the NZ Superannuation Fund.

These purposes are not mutually exclusive, with portfolios typically established for, or arising from, a public policy objective, such as pre-funding future superannuation expenses, but in doing so are managed to maximise economic returns consistent with the policy objective.

Reporting to Ministers on these portfolios is done on a portfolio-by-portfolio basis. The institutional frameworks and policy objectives of these portfolios are reviewed periodically. Otherwise reporting on the consolidated financial management and performance of these portfolios is done in the context of the interim and annual Financial Statements of the Government and the forecasts reported in the Half-Year and Budget Economic and Fiscal Updates.

Details of the significant accounting policies and methods adopted including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset and financial liability are disclosed in Note 1 of the financial statements.

(a) Analysis of financial instruments

Financial instruments are measured at either fair value or amortised cost. Changes in the value of an instrument may be reported in the operating balance or directly in net worth depending on its designation. The following table details the value of financial assets and financial liabilities by class of instrument and by designation category, as defined in the accounting policies in Note 1.

Financial Assets
 Financial assets as at 30 June 2010 Designation
Note Amortised cost Available for sale Held for trading Fair value
through P&L 		Total
  $m $m $m $m $m
Cash and cash equivalents 7,774 -  -  -  7,774
Trade and other receivables 14 2,999 -  -  -  2,999
Long-term deposits 15 2,290 -  -  494 2,784
Derivatives in gain 15 -  -  2,972 -  2,972
Marketable securities 15 -  331 490 34,911 35,732
IMF financial assets 15 2,199 -  -  -  2,199
Share investments 16 25 73 -  12,081 12,179
Student loans 17 6,790 -  -  -  6,790
Kiwibank mortgages 17 9,183 -  -  1,236 10,419
Other advances 17 1,011 42 -  185 1,238
Total financial assets by designation 32,271 446 3,462 48,907 85,086
Financial Assets (continued)
Financial assets as at 30 June 2009 Designation
Note Amortised cost Available for sale Held for trading Fair value
through P&L 		Total
  $m $m $m $m $m
Cash and cash equivalents 6,268 -  -  -  6,268
Trade and other receivables 14 3,151 -  -  -  3,151
Long-term deposits 15 2,695 -  -  441 3,136
Derivatives in gain 15 -  -  3,745 -  3,745
Marketable securities 15 -  646 773 36,954 38,373
IMF financial assets 15 454 -  -  -  454
Share investments 16 -  74 -  11,086 11,160
Student loans 17 6,553 -  -  -  6,553
Kiwibank mortgages 17 6,370 -  -  2,122 8,492
Other advances 17 519 -  -  40 559
Total financial assets by designation 26,010 720 4,518 50,643 81,891

As at 30 June 2010, the carrying value of financial assets that had been pledged as collateral was $1,073 million (2009: $930 million). These transactions are conducted under terms that are usual and customary to standard securities borrowing.

Financial Liabilities
Financial liabilities as at 30 June 2010 Designation
Note Amortised cost Held for trading Fair value
through P&L 		Total
  $m $m $m $m
Issued currency 4,020 -  -  4,020
Accounts payable 23 6,703 -  -  6,703
Borrowings: 24        
     Government stock 26,814 -  1,112 27,926
     Treasury bills 6,821 -  804 7,625
     Government retail stock 309 -  -  309
     Settlement deposits with Reserve Bank -  -  6,679 6,679
     Derivatives in loss -  2,376 -  2,376
     Finance lease liabilities 920 -  -  920
     Other borrowings 18,587 208 5,103 23,898
Total borrowings 53,451 2,584 13,698 69,733
Total financial liabilities by designation 64,174 2,584 13,698 80,456
Financial Liabilities (continued)
Financial liabilities as at 30 June 2009 Designation
Note Amortised cost Held for trading Fair value
through P&L 		Total
  $m $m $m $m
Issued currency 4,005 -  -  4,005
Accounts payable 23 5,380 -  -  5,380
Borrowings: 24
     Government stock 17,710 -  3,454 21,164
     Treasury bills 7,294 -  138 7,432
     Government retail stock 491 -  -  491
     Settlement deposits with Reserve Bank -  -  6,908 6,908
     Derivatives in loss -  2,158 -  2,158
     Finance lease liabilities 1,002 -  -  1,002
     Other borrowings 14,602 8 8,188 22,798
Total borrowings 41,099 2,166 18,688 61,953
Total financial liabilities by designation 50,484 2,166 18,688 71,338

Fair Value Hierarchy

The following table analyses the basis for the valuation of financial assets and financial liabilities measured at fair value:

Fair Value Hierarchy
  Quoted market
price		 Observable
markets		 Significant
non-observable
inputs		 Total
  $m $m $m $m

Financial assets as at 30 June 2010

       
Long-term deposits -  494 -  494
Derivatives in gain -  2,765 207 2,972
Marketable securities 13,144 21,434 1,154 35,732
Share investments 12,010 32 112 12,154
Kiwibank mortgages -  -  1,236 1,236
Other advances -  187 40 227
Total financial assets 25,154 24,912 2,749 52,815

Financial liabilities as at 30 June 2010

       
Government stock 1,112 -  -  1,112
Treasury bills -   804 -  804
Government retail stock -  -  -  - 
Settlement deposits with Reserve Bank 6,679 -  -  6,679
Derivatives in loss 1 2,137 238 2,376
Other borrowings 740 4,571 -  5,311
Total financial liabilities 8,532 7,512 238 16,282

 

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