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This paper develops a framework to decompose the change in New Zealand’s public debt ratio into four component effects: the primary balance, real GDP growth, real interest rates, and exchange rates. We study New Zealand's debt dynamics over three periods: the decade after the Global Financial Crisis (2008 – 2018), the five-year forecasts (2019 – 2023), and the medium-term projections (2024 – 2033). We find asymmetry between the component effects of the debt dynamics on New Zealand's public debt ratio. The primary balance is the larger contributor to the public debt ratio (either positive or negative), while the automatic debt dynamics (the interest-growth differential and exchange rates) are relatively benign.
The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.
The author would like to thank Matthew Bell, Andrew Binning, Anna Hamer-Adams, Angus Hawkins, Thomas Helbling, Robert Kirkby, Oscar Parkyn and Eric Tong for their comments and feedback on earlier drafts of the paper.
- public debt; debt dynamics; fiscal policy; debt sustainability; fiscal sustainability