Administration of Crown Borrowing PLA
Scope of Appropriation
This appropriation is limited to expenses incurred in connection with administering borrowing by the Crown, as authorised by section 61(1) of the Public Finance Act 1989.
Significant Work Completed During 2009/10
- The final 2009/10 domestic debt programme was $12.5 billion, a $4 billion increase on the programme announced at the beginning of the year. This allowed us to pre-fund future borrowing requirements while market conditions remained favourable.
- The 2009/10 annual average cost of new borrowing was 4.15%, compared with a long-run average cost of around 6%.
- A number of measures were introduced to improve liquidity in the domestic market. The bond tranche size was increased from $6 billion to $8 billion, and we confirmed that we were actively considering the reintroduction of inflation-indexed debt.
- At year-end there were $7.8 billion treasury bills outstanding in the market. Treasury bills outstanding peaked at $9.2 billion in September. In April we re-introduced the one-year treasury bill, providing investors with an additional short-term government security and increasing the range of funding options available to NZDMO.
- NZDMO, in conjunction with the Minister of Finance where appropriate, promoted New Zealand government securities at conferences and investor meetings in Europe, Asia, New Zealand and Australia.
| Performance Dimensions | Target (see notes) | Performance for 2009/10 |
|---|---|---|
| All policy outputs comply with the Treasury's Quality Standards for Policy Advice, as assessed by the Minister three times during the year. | Rated as meeting and frequently exceeding expectations |
Not assessed in 2009/10. Refer to page 60 for further information on the application of the policy standard during 2009/10. |
| Compliance with risk management policies and parameters for portfolio management and debt issuance. See note on Compliance with risk management policies below. | No more than four breaches |
Achieved. There were four breaches in 2009/10: three liquidity policy breaches and one credit breach. |
| Value-added from management of the Crown's debt and related financial assets to meet targets for tactical portfolios. See note on Value-added from management of the tactical portfolios below. | $40 to $60 million |
Achieved. Value-added was $69 million in 2009/10. |
| Average VaR for the tactical portfolios, at a confidence level of 95%. See note on Average VaR below. | Average monthly VaR is less than $1.4 million |
Achieved. Average monthly VaR was $0.8 million, or 5.6% of the limit set by the Minister of Finance (see note below). |
| Losses incurred from the credit-related sale of securities, or from default by a counter-party. | No losses |
Achieved. There were no losses from the credit-related sale of securities, or from default by a counter-party. |
| Number of settlement errors, and financial value of losses arising from settlement errors. | No more than 12 errors; losses do not exceed $10,000 |
Achieved. There were four settlement errors, at a cost of $1,689 to the Crown. |
| 2009/10 Actual $000 |
Supp. Estimates - Voted $000 |
Main Estimates $000 |
2008/09 Actual $000 |
|||
|---|---|---|---|---|---|---|
| Expenses | 5,161 | 5,701 | 3,260 | |||
| Funded by: | ||||||
| Revenue Crown | 5,059 | 5,603 | 3,200 | |||
| Other Revenue | 102 | 98 | 60 | |||
In 2009/10, the Debt and Related Financial Asset Management output class was split across three PLA appropriations, and one annual output class. A summary of the PLA financials and the 2008/09 comparatives are provided on page 50.
Actual 2009/10 output class expenditure was $540,000 or 9% under the Supplementary Estimates budget owing to unpredictability of foreign legal fees associated with the European Medium Term Note (EMTN) and European Commercial Paper (ECP) products, coupled with favourable exchange rate movements. In addition, lower demand for Kiwibonds resulted in a corresponding decrease in registry costs.
Notes:
Aggregated performance targets for PLAs
Performance targets for Administration of Crown Borrowing PLA, Administration of Derivative Transactions PLA and Administration of Public Borrowing PLA have been aggregated. The performance targets were specified as a total for activity across these output classes because this provided a more meaningful measure of the outputs produced by NZDMO. Measures have been cross-referenced in all three output appropriations.
The full set of measures and targets for the 2009/10 year and relevant notes are published in the Administration of Crown Borrowing PLA.
Compliance with risk management policies - performance measure
To improve transparency, the 2009/10 target explicitly identifies the number of breaches considered acceptable under existing NZDMO policy.
Value-added from management of the tactical portfolios meets target level
NZDMO derives the value-added figure from its management reporting, which is calculated on a different basis from external Crown financial statement reporting. The “tactical” portfolios are those where NZDMO is able to conduct discretionary transactions to manage risks: specifically, the liquidity, departmental and foreign exchange portfolios.
NZDMO values its portfolio(s) by the commonly-used methodology of calculating net present values from all future cash flows using zero-coupon discount curves which are generated at least daily from current market data. Generally, no counter-party credit spreads are applied to the curves.
NZDMO uses current spot foreign exchange rates to translate foreign currency net present values to New Zealand dollars. The value-added measure is primarily used to compare current performance against historic performance. Historic performance helps guide the establishment of future targets, which are set annually taking into account changes in the external environment.
Average VaR - performance measure
The Minister of Finance has agreed to a limit for average monthly VaR across the whole of NZDMO's operations of $14 million. NZDMO's performance target for the tactical portfolios is set at 10% of the total limit, or $1.4 million.
