Last updated:
Friday, 24 July 2020
Recent developments
New Zealand Debt Management (NZDM) is a function within the Treasury[1] and is responsible for managing the Crown's net cash flows and liquidity position. This document covers recent developments in the New Zealand Government Securities (NZGS) Market and sets out the latest Funding Strategy for the 2020/21 year.
New Zealand's COVID-19 developments
The first COVID-19 case in New Zealand was confirmed in late February 2020, with increasing cases thereafter. As the number of confirmed cases increased, the New Zealand Government introduced border restrictions and implemented a four level alert system. The alert levels specify the public health and social measures taken to address the pandemic.
New Zealand is currently at Alert Level 1 (L1). This means that the country is operating business as usual but the international borders are largely closed.
The Alert Level 4 (L4) lockdown, where most businesses were unable to operate, led to a significant contraction in economic activity. March quarter 2020 GDP growth fell 1.6 per cent quarter-on-quarter, reflecting initial restrictions on activity.
To cushion the impact to the economy, the Government announced significant fiscal stimulus - an initial NZ$12.1 billion package announced on 17 March and the NZ$50 billion COVID-19 Response and Recovery Fund (CRRF) announced at the Budget on 14 May. Stimulus packages include a wage subsidy scheme, business support packages, a trades training package, and funding for education, health and other social sectors. Approximately NZ$20 billion of the CRRF remains as an unallocated contingency.
New Zealand's credit ratings are unchanged. Since the onset of COVID-19, both S&P Global Ratings and Moody's Investor Services have reaffirmed New Zealand's long-term local currency credit ratings at AA+ (positive outlook) and Aaa (stable outlook) respectively.
Figure 1: Number of daily confirmed COVID-19 cases in New Zealand
Source: Ministry of Health/the Treasury
Alert Level Description
Alert Level 1 (L1) Prepare - The disease is contained in New Zealand
Alert Level 2 (L2) Reduce - The disease is contained, but the risk of community transmission remains
Alert Level 3 (L3) Restrict - High risk the disease is not contained
Alert Level 4 (L4) Lockdown - Likely the disease is not contained
Border Restrictions (BR) Border restrictions imposed
The impact of COVID-19 on the Crown's fiscal outlook is unprecedented. The Budget Economic and Fiscal Update (BEFU) 2020 showed substantial increases to the forecast borrowing programme, of NZ$152 billion, relative to that forecast at the Half Year Economic and Fiscal Update (HYEFU) 2019.
| Year ending 30 June (face value, NZ$ billion) | 2020 | 2021 | 2022 | 2023 | 2024 | Total |
|---|---|---|---|---|---|---|
| Gross NZGB issuance | ||||||
| BEFU 2020 | 29 | 60 | 40 | 35 | 30 | 194 |
| HYEFU 2019 | 10 | 10 | 8 | 8 | 6 | 42 |
| Change in issuance | 19 | 50 | 32 | 27 | 24 | 152 |
| T-Bills on issue | ||||||
| BEFU 2020 | 10 | 10 | 10 | 10 | 10 | n/a |
| HYEFU 2019 | 3 | 4 | 4 | 4 | 2 | n/a |
| Change in T-Bills on issue | 7 | 6 | 6 | 6 | 8 | n/a |
Source: The Treasury
To execute the borrowing programme, NZDM have made significant changes to the Funding Strategy for 2020/21. The following developments have occurred:
- Individual nominal bond line caps were lifted from NZ$12 billion to NZ$18 billion.
- Tender schedules are now published a month, rather than a quarter, in advance.
- Weekly tenders now include multiple bonds rather than one bond.
- NZ$1 billion to NZ$2 billion of inflation-indexed bonds are forecast to be issued in 2020/21, subject to market conditions.
- Tap syndications of existing bond maturities now complement the use of syndications to issue new bond lines.
- Continued focus on core New Zealand Dollar (NZD) funding instruments, but with a small volume of short-dated European Commercial Paper (ECP)[2] on issue, and documentation for long-dated European Medium Term Note (EMTN)[3] issuance maintained.
- Additional communication channels have been created, including the monthly Investor Update and virtual investor meetings.
Notes
- [1] The Treasury is the Government's lead economic and financial adviser. The Treasury provide advice to the Government on its overarching economic framework, on its fiscal strategy and on achieving value for money from its investments.
- [2] ECP is an unsecured, short-term debt instrument that is denominated in a currency differing from the domestic currency of the market where it is issued.
- [3] EMTN is a medium-term debt instrument that is denominated in a currency differing from the domestic currency of the market where it is issued.