Most of the North Island could be declared a drought zone by the end of the week, but Prime Minister John Key says the impact on the Government's books remains to be seen.
Droughts have been declared in Northland, Waikato, Bay of Plenty and Hawkes Bay, with farming districts in Auckland covered by the Northland and Waikato droughts.
Further areas including Wairarapa, Manawatu-Rangitikei, Taranaki and Gisborne are also asking for help as the dry spell continues to have devastating effects.
Urban areas are also feeling the impact, with authorities in the Wellington region looking to draw water from the Hutt River as water reserves dwindle to only 20 more days of supply.
Primary Industries Minister Nathan Guy, who is on his way back to New Zealand from a trade delegation to South America with Mr Key, said he was getting regular updates on the drought situation.
"It's looking likely we'll make an announcement towards the end of this week on further areas being declared," he told reporters on the delegation.
Mr Key said the Government was still on track to reach surplus, but it remained to be seen how deep the drought was.
"Obviously the slowdown from the agricultural sector has some impact on tax revenue. How much that is and how pronounced it is, and what other counter-balancing factors there are, we just don't know at this point," he said.
"The Government remains committed to trying to reach its surplus target. That's been our ambition. There's always factors that can interfere in that."
Mr Key said while the drought would reduce tax revenues, that could be balanced out by revenue from the Auckland housing market and the Christchurch rebuild.
Regional authorities in Wellington yesterday said they had activated a consent to take extra water from the Hutt River, giving the region up to 10 days more water supply.
That would help to conserve water in the one available storage lake at Te Marua, which currently holds 10 days supply in reserve.
The region has had no significant rainfall since early February, and rivers would continue to drop without significant rain in the water catchment areas.
Greater Wellington Regional councillor Nigel Wilson said activating the consent would ensure residents in Wellington, Porirua and the Hutt Valley had enough water to meet essential needs.
Demand has been low compared to similar summers, but it was important to conserve water until there was some significant rain.
"If we all do our bit to conserve some more water then we should be okay," Mr Wilson said.
A sprinkler ban has been in place since Saturday and further water restrictions may be required if water use continued to outstrip supply.
The MetService yesterday said it was too early to know if Tropical Cyclone Sandra would bring much needed rain to the country.
Forecaster William Nepe said Sandra was the best chance of the country seeing any rain soon, and while some models showed the cyclone heading towards the North Island, others showed it moving towards Australia.
Finance Minister Bill English said the drought could affect the economy for at least couple of years. ANZ has estimated the cost to the economy at $1 billion, a figure farmers warn could blow out in coming months.
- APNZBy Matthew Backhouse @Mbackhouse Email Matthew