The IMF says New Zealand has the second smallest government debt out of the 23 advanced economies it analysed. Photo / Mark Mitchell
New Zealand is among only a handful of advanced economies where the government's budget is best placed to deal with "unexpected shocks", an International Monetary Fund (IMF) report says.
The National government has been criticised by the opposition for increasing debt to fund tax cuts during tough economic times.
But
the IMF staff report released yesterday found New Zealand had the second smallest government debt out of the 23 advanced economies it analysed, suggesting the country's budget would be well-placed to deal with future shocks.
The Washington-based institution examined a country's "debt limit" based on its historical track record and its current debt level, which it describes as the "fiscal space".
"Among the advanced economies, Australia, Denmark, Korea, New Zealand and Norway generally have the most fiscal space to deal with unexpected shocks," the report said.
But it said these countries must be mindful of future fiscal pressures.
In contrast, Greece, Italy, Japan and Portugal have the least fiscal space, while Iceland, Ireland, Spain, the UK and US are also restrained in their degree of "fiscal manoeuvre", it said.
"An absence of fiscal space should not be taken to mean that some form of fiscal 'crisis' is imminent, or even likely, but it does underscore the need for credible adjustment plans," the IMF said.
The report shows that government debt among the 23 countries on average rose from 60 per cent of gross domestic product (GDP) on the eve of the global financial crisis at the end of 2007, to almost 75 per cent by the end of 2009.
The IMF projects this debt ratio will continue to rise to more than 85 per cent of GDP by 2015.
But among this average, differences could not be more extreme.
At one end, Japan had a 187.7 per cent debt to GDP ratio at end-2007, rising to 217.7 per cent at end-2009 and a projected rise to a staggering 250 per cent by 2015.
At the other end of the scale, Australia had the smallest debt of 9.4 per cent of GDP in 2007, 15.5 per cent in 2009 and a projected 20.9 per cent in 2015.
The next smallest was New Zealand at 17.4 per cent, 26.1 per cent and 36.1 per cent respectively.
NZPA
