The International Monetary Fund has given New Zealand’ policies a tick of approval:
Finance Minister Bill English has welcomed the International Monetary Fund’s conclusion that the Government’s deficit reduction programme strikes the right balance between supporting growth and limiting public debt.
In its Preliminary Concluding Statement the IMF says New Zealand’s macro-economic policy stance is appropriate and that the monetary policy should continue to be the first line of defence against adverse shocks.
And it notes that economic growth appears to have strengthened in the last few months of 2012.
The IMF says: “We regard the planned pace of deficit reduction as striking the right balance between sustaining output growth and limiting public debt growth, and consistent with a policy setting where monetary policy plays a primary role in managing aggregate demand. The benefits of the plan are many.”
Mr English says the IMF’s assessment reflected the balanced and pragmatic approach the Government had taken with its economic programme over the past four years.
“The IMF notes there are many benefits to the Government’s plan. It is withdrawing fiscal stimulus at the right time by making room for private sector and earthquake-related reconstruction spending.
“It has also improved the macro-economic policy mix by reducing pressure on monetary policy. The programme also allows New Zealand to deal with aging and healthcare costs, and to cope with any future shocks.
“Finally, as the IMF concludes, the programme could help to increase national savings, reduce the current account deficit and limit the increase in New Zealand’s foreign liabilities.”
This was the subject of questions in parliament yesterday:
Hon STEVEN JOYCE: The IMF identifies two main near-term risks to the New Zealand economy. These are potential weaknesses or a worsening in the financial conditions in the world economy. The IMF also identifies risk in the New Zealand housing market, noting that supply bottlenecks persist and prices remain elevated. The IMF notes that New Zealand has room to respond to shocks with its monetary policy, and the level of public debt leaves room for fiscal policy response. The floating New Zealand dollar is also seen as an effective buffer. The IMF also says that our fundamentals have improved since the global financial crisis. Household and business balance sheets have strengthened, and banks have reduced their foreign funding and been assisted by a strong growth in deposits and slower growth in credit.
Maggie Barry: What does the IMF say about the value of the New Zealand dollar?
Hon STEVEN JOYCE: The IMF shares the Government’s view that the dollar is at a high value, largely because of factors outside our control. In particular, the strength of the New Zealand dollar is determined by the relative weaknesses of other currencies and other economies, many of which are printing money. As it says, if global monetary policy were to become less stimulatory, the exchange rate would likely depreciate over time. The IMF also notes that the Government’s return to surplus is easing pressure on the exchange rate by boosting national savings.
Hon David Parker: Does he agree with the IMF that “… New Zealand has run persistent current account deficits resulting in net external liabilities which are high by international standards. The deficit is expected to widen this year despite relatively strong terms of trade …”?
Hon STEVEN JOYCE: Yes, and I would note that those were largely due to the previous Government when the balance of payments deficit rolled out to over 8 percent of GDP. I really think the member should stop this line of questioning because all he does is point out that the Opposition are lousy economic managers.
Quite where the deficit would be had a Labour-led government still been in power is a very scary thought.
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