New Zealand Government Debt Third level Fourth level Market - PowerPoint PPT Presentation

Click to edit Master title style • Click to edit Master text styles – Second level New Zealand Government Debt • Third level – Fourth level Market Outlook » Fifth level November 2019

Click to edit Master title style Overview • Click to edit Master text styles – Second level Fiscal outlook • Third level – Fourth level » Fifth level Funding Strategy Market Dynamics

Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Fiscal outlook

Click to edit Master title style Summary of forecasts Executive summary table • Click to edit Master text styles June years 2018 2019 2020 2021 2022 2023 – Second level Actual Forecast Forecast Forecast Forecast Forecast Economic • Third level Real production GDP (annual average % change) 3.2 2.4 3.0 2.8 2.4 2.4 – Fourth level Real GDP per capita (annual average % change) 1.1 0.7 1.5 1.5 1.3 1.2 Unemployment rate (June quarter) 4.4 4.1 4.0 4.1 4.2 4.3 » Fifth level CPI inflation (annual % change, June quarter) 1.5 1.8 2.0 2.1 2.0 2.0 Current account balance (% of GDP) -3.4 -3.4 -3.4 -3.4 -3.3 -3.3 Fiscal (% of GDP) Core Crown tax revenue 27.8 28.2 28.2 28.5 28.6 28.8 Core Crown expenses 27.9 29.1 29.4 29.6 29.0 28.8 Total Crown operating balance before gains and losses 1.9 1.2 0.4 0.6 1.3 1.7 Core Crown residual cash 0.5 -0.9 -1.3 -1.3 -0.2 0.3 Net core Crown debt 19.9 20.1 20.4 20.7 19.9 18.7 Net worth attributable to the Crown 44.9 43.4 42.5 42.1 42.8 43.9 Source: StatsNZ, The Treasury, BEFU 2019

Click to edit Master title style Operating surpluses sustained • Click to edit Master text styles NZ $billions 15 Forecast – Second level 10 • Third level 5 – Fourth level 0 » Fifth level -5 -10 -15 -20 -25 2009 2011 2013 2015 2017 2019 2021 2023 Year ending 30 June Operating Balance (excluding gains and losses) Source: The Treasury, BEFU 2019

Click to edit Master title style Plans for capital spending • Click to edit Master text styles NZ $billions 15 – Second level 10 • Third level – Fourth level 5 » Fifth level 0 -5 -10 -15 2018 2019 2020 2021 2022 2023 Year ending 30 June Operating Capital Residual cash Source: The Treasury, BEFU 2019

Click to edit Master title style Net debt contained • Click to edit Master text styles % of GDP NZ $billions 80 32 – Second level Forecast 70 28 • Third level 60 24 – Fourth level 50 20 » Fifth level 40 16 30 12 20 8 10 4 0 0 2009 2011 2013 2015 2017 2019 2021 2023 Year ending 30 June Net core Crown debt % of nominal GDP (RHS) Source: The Treasury, BEFU 2019

Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Funding Strategy

Click to edit Master title style Changing funding needs • Click to edit Master text styles NZ$b NZ$b 20 90 – Second level Forecast 18 80 • Third level 16 70 – Fourth level 14 60 » Fifth level 12 50 10 40 8 30 6 20 4 10 2 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Annual bond issuance - year ended June Total Market Bonds on Issue (RHS) Source: The Treasury

Click to edit Master title style Forecast borrowing programme • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Source: The Treasury, BEFU 2019

Click to edit Master title style Current NZGB portfolio • Click to edit Master text styles NZ$b 12.0 – Second level 10.0 • Third level 8.0 – Fourth level » Fifth level 6.0 4.0 2.0 0.0 Apr May Apr Apr Sep Apr Apr Sep May Apr Sep Apr Sep 20 21 23 25 25 27 29 30 31 33 35 37 40 As at 30 September, 2019 Source: The Treasury

Click to edit Master title style Reduced rate of IIB issuance % NZ$b • Click to edit Master text styles 5.0 6 4.5 – Second level Forecast 5 4.0 • Third level 3.5 4 – Fourth level 3.0 » Fifth level 2.5 3 2.0 2 1.5 1.0 1 0.5 0.0 0 Jun 2012 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 Jun 2019 Jun 2020 IIB issuance (fiscal year) (RHS) Inflation breakeven for IIB2025 Source: Bloomberg, The Treasury

Click to edit Master title style Increasing average-weighted maturity NZGB Portfolio - Average Weighted Years to Maturity • Click to edit Master text styles Years – Second level 8.5 8.0 • Third level 7.5 – Fourth level » Fifth level 7.0 6.5 6.0 5.5 5.0 4.5 4.0 Jul 12 Jul 13 Jul 14 Jul 15 Jul 16 Jul 17 Jul 18 Jul 19 Source: The Treasury

Click to edit Master title style Environment, Social and Governance (ESG) • • Click to edit Master text styles The New Zealand Government has clearly stated ESG objectives. • Many of these are outlined in the Government’s Wellbeing Budget 2019 that focuses on the – Second level wellbeing of people, the health of the environment and the strength of communities. • Third level • https://treasury.govt.nz/publications/wellbeing-budget/wellbeing-budget-2019 – Fourth level • The Government is committed to progressing a climate change programme that allows for a » Fifth level just transition to a low-emissions economy. • Cabinet has agreed a policy framework which will drive climate change policy towards low greenhouse gas emissions and climate resilience in New Zealand. • https://www.mfe.govt.nz/climate-change/climate-change-and-government/climate-change- programme • In this context, the Treasury currently has no plans to issue bonds in a specific ESG format. More broadly, it is cognizant of the contribution that efficient debt funding can make to the Government’s ESG objectives.

Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Market Dynamics

Click to edit Master title style Registered tender counterparties • Click to edit Master text styles The current list of approved Registered Tender Counterparties are: – Second level • ANZ Bank New Zealand Limited • Third level • Bank of New Zealand – Fourth level • Commonwealth Bank of Australia » Fifth level • Deutsche Bank AG, Sydney • J.P. Morgan Securities Australia Limited • The Toronto-Dominion Bank, London • UBS AG, Australia • Westpac Banking Corporation, New Zealand

Click to edit Master title style Offshore demand resilient % % • Click to edit Master text styles 7 80 75 6 – Second level 70 5 • Third level 65 4 – Fourth level 60 3 » Fifth level 55 2 50 1 45 0 40 -1 35 market pricing -2 30 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 NZ OCR minus Fed funds rate Non-resident holdings of NZGBs (%) (RH) As at 4 November, 2019 Source: RBNZ, Bloomberg 17

Offshore tilt to longer maturities Click to edit Master title style • Click to edit Master text styles Non-resident holdings of NZGBs by maturity NZ$b 35 – Second level 30 • Third level 25 – Fourth level 20 » Fifth level 15 10 5 0 Jul 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017 Jan 2018 Jul 2018 Jan 2019 Jul 2019 Non-resident holdings of nominal bonds 2019s to 2023s Non-resident holdings of nominal bonds 2025s to 2037s Source: RBNZ, The Treasury

Click to edit Master title style Strong governance structure • Click to edit Master text styles Control of Corruption 100 – Second level 90 • Third level Voice and Accountability Government Effectiveness – Fourth level 80 » Fifth level 70 Political Stability and Rule of Law Absence of Violence/Terrorism Regulatory Quality Average of sovereigns rated AA (fc) and higher by S&P New Zealand Source: World Bank Worldwide Governance Indicators 2017

Click to edit Master title style Relative yield • Click to edit Master text styles % 5.0 – Second level 4.0 • Third level – Fourth level 3.0 » Fifth level 2.0 1.0 0.0 Nov 2012 Nov 2013 Nov 2014 Nov 2015 Nov 2016 Nov 2017 Nov 2018 Nov 2019 10-year yield: NZGB (rated AA (fc) by S&P) 10-year yield: Average of sovereigns rated AA (fc) and higher by S&P Source: Bloomberg

Click to edit Master title style Real yields relative to peers % • Click to edit Master text styles 0.5 – Second level 0.0 • Third level -0.5 – Fourth level » Fifth level -1.0 -1.5 -2.0 -2.5 -3.0 UK Germ JP US AU NZ 10-year real yield As at 1 November 2019 Source: Bloomberg