Balance of Payments and International Investment Position: September 2009 quarter

Overview

The seasonally adjusted current account balance was a surplus of $340 million this quarter, a $746 million turnaround from the June 2009 quarter deficit of $406 million. This is the first seasonally adjusted current account surplus since the December 1988 quarter. The change in the current account balance from a deficit to a surplus this quarter was mostly due to a narrowing of the investment income deficit. A decrease in exports of goods was mostly offset by a decrease in imports of goods.

The investment income deficit, which is not seasonally adjusted, was $574 million in the September 2009 quarter, $792 million smaller than the June 2009 quarter deficit. The decrease in the income deficit this quarter was mainly due to a fall in profits earned by foreign investors from their direct investments in New Zealand. Similarly to the June 2009 quarter, this decrease in company profits was influenced by $1,366 million of company tax transactions in the banking sector that were brought into account during the quarter. Interest paid overseas also fell. Income from New Zealand investment abroad increased $149 million due to increased earnings by New Zealand owned subsidiaries operating overseas.

The seasonally adjusted balance on goods was a surplus of $734 million in the September 2009 quarter, a fall of $55 million compared to the June 2009 quarter surplus. Exports of goods decreased $665 million this quarter, mainly due to lower volumes of meat exports and lower prices for exports of dairy products. Export prices fell 5.2 percent, following a fall of 11.9 percent in the June 2009 quarter. Imports of goods fell $609 million, as prices for all categories except petroleum and petroleum products fell. This was partly offset by an increase in import volumes this quarter, particularly for intermediate goods.

The seasonally adjusted services balance changed from a deficit of $77 million in the June 2009 quarter to a surplus of $55 million in the September 2009 quarter. This was mainly due to a fall in imports of services, driven by lower prices for sea freight as well as a fall in expenditure on construction services (which are not separately seasonally adjusted).

For the year ended September 2009, the current account deficit was $5,723 million (3.1 percent of GDP). This compares with a current account deficit of $10,371 million (5.6 percent of GDP) for the year ended June 2009, and $15,437 million (8.4 percent of GDP) for the year ended September 2008. 

Excluding the impact of the unusually large company tax transactions in the June 2009 and September 2009 quarters (respectively $661 million and $1,366 million) enlarges the current account deficit, and the deficit to GDP ratio. Excluding these tax effects, the current account deficit for the year ended June 2009 would be $11,032 million (6.0 percent of GDP), and the current account deficit for the year ended September 2009 would be $7,750 million (4.2 percent of GDP).

 

The $9,714 million decrease in the current account deficit from the year ended September 2008 was due to a $5,751 million decrease in the investment income deficit, as well as the goods balance changing from a deficit to a surplus. Profits earned by foreign-owned firms in New Zealand fell $4,345 million over this time – the main reason behind the smaller investment income deficit. This was in turn affected by unusually large company tax transactions, as well as a general fall in company profits.

The balance on goods changed from a deficit of $2,326 million for the year ended September 2008, to a surplus of $2,284 million for the year ended September 2009. Imports of goods fell $4,870 million over this time, as prices for petroleum and petroleum products decreased from their peak in the September 2008 quarter. The value of exports of goods remained relatively stable over the same time, falling $261 million.

The steep fall in the current account deficit between the September 2008 and September 2009 years reduces the need for financing from abroad. This financing is achieved by reducing the country's external assets or increasing its external liabilities. In the year ended September 2009, the current account deficit was primarily financed by a $3.1 billion net inflow of financial capital. Of this, $2.8 billion were transactions reducing the country's overseas assets. By comparison, in the year ended September 2008, the $15.4 billion current account deficit was primarily financed by $14.8 billion of transactions increasing New Zealand's overseas liabilities.

New Zealand's net debtor position (liabilities exceeding assets) at 30 September 2009 was $12.0 billion (7.4 percent) larger than at 30 September 2008. Measured financial account transactions increased net liabilities by $3.1 billion, while changes in the value of assets and liabilities contributed the remaining $8.8 billion. Of this, net changes in the market value of financial derivative contracts, market price and other valuation changes contributed $10.8 billion to the larger net debtor position. This was partly offset by a $2.0 billion reduction in net liabilities resulting from changes in exchange rates.

Trend

The current account balance trend series is showing a surplus of $0.5 billion in the September 2009 quarter, moving from a deficit of over $4 billion a year ago. This is the first time the current account balance trend has been in surplus since the December 1988 quarter, which was also the last time the seasonally adjusted balance was a surplus. The change in the trend from a deficit to a surplus over the past year is due to movements in both the goods and services, and income and transfers trend balances.

The income and transfers trend balance has adjusted sharply over the past two quarters, with the deficit narrowing by $2.2 billion since the March 2009 quarter. This was driven by the trend estimate of investment income earned by foreign investors in New Zealand. The goods and services trend balance has levelled out and is showing a third consecutive quarterly surplus, driven by a decrease in the trend estimate of goods imports. The previous sustained period of surpluses for the goods and services trend balance ended in the December 2003 quarter. 

 

Goods

All references to quarterly figures are seasonally adjusted unless otherwise stated.

The goods balance was a surplus of $734 million in the September 2009 quarter, $55 million smaller than the surplus in the June 2009 quarter. This is the third consecutive quarterly balance on goods surplus. Exports of goods decreased $665 million this quarter, while imports of goods decreased $609 million.

According to the Reserve Bank of New Zealand (RBNZ), the New Zealand dollar rose 7.2 percent against the Trade Weighted Index (TWI) during the September 2009 quarter.

The decrease in the value of goods exports in the September 2009 quarter was mainly due to falls in exports of meat and dairy products. The value of exports of dairy products decreased due to a 10.4 percent fall in prices this quarter, despite volumes reaching their highest level since this series began in the September 1990 quarter.

Partly offsetting the fall in the value of exports was petroleum and petroleum products, which was the only category to record an increase in prices. Exports of petroleum and petroleum products were boosted by the Maari oilfield recording its first full quarter of exports during the September 2009 quarter. Total merchandise export prices fell 5.2 percent this quarter, following a fall of 11.9 percent in the previous quarter.

Falling prices were behind the lower value of goods imports in the latest quarter, while volumes increased slightly. The main driver of the decrease in goods imports was a fall in imports of electrical machinery and apparatus. Imports of petroleum and petroleum products partly offset the general fall in imports this quarter, due to a 16.9 percent increase in prices. Similarly to exports, prices for all import categories except petroleum and petroleum products decreased this quarter. 

The actual goods balance for the year ended September 2009 was a surplus of $2,284 million, a $4,610 million turnaround from the deficit for the year ended September 2008 . This was mainly due to a $4,870 million fall in imports of goods. Both import volumes and prices fell between these two periods, with a fall in petroleum and petroleum product prices the main contributor to the lower value of imports for the year ended September 2009. The most recent peak in world oil prices occurred during the September 2008 quarter. Exports of goods decreased $261 million, due to falls in exports of aluminium (prices and volumes) and dairy products (due to lower prices).

Services

All references to quarterly figures are seasonally adjusted unless otherwise stated.

The services balance was a surplus of $55 million in the September 2009 quarter, compared with a deficit of $77 million in the June 2009 quarter. This is the first surplus since the December 2007 quarter. The turnaround this quarter was driven by falling imports.

Imports of services were down $146 million in the September 2009 quarter. Imports of transportation services fell $51 million, due to the strong New Zealand dollar coupled with falling prices for international freight services (see Overseas Trade Index (Prices): September 2009 quarter (provisional)). Imports of travel services were flat this quarter, up $3 million, as the number of New Zealanders travelling overseas increased. The other services categories, which are not seasonally adjusted, fell a total of $128 million this quarter, mainly due to falls in imports of construction services and other business services.

Exports of services fell $15 million in the September 2009 quarter. Personal, cultural, and recreational services decreased $45 million due to lower earnings recorded on sporting and audio visual services. Other business services exports fell $14 million, while royalties and license fees fell $11 million. These services are not seasonally adjusted. There was also a drop in transportation services exports. Offsetting the decreases was a $38 million rise in exports of travel services, as the number of overseas visitors and the average expenditure per person per day increased this quarter.

The year ended September 2009 balance on services was a deficit of $635 million, compared with a deficit of $969 million in the year-ended June 2009. The decrease was driven by a $225 million smaller transportation services deficit, as transportation imports fell due to lower prices for international freight and lower volumes of goods imported (which means lower freight payments on these goods). The number of New Zealanders travelling overseas also fell over this period.    

Investment income

The investment income deficit was $574 million in the September 2009 quarter, $792 million less than the June 2009 quarter deficit of $1,366 million. The decrease in the deficit was caused by a $643 million decrease in foreign investors' earnings on their investments in New Zealand combined with a $149 million increase in New Zealanders' earnings on their investments abroad. The September 2009 quarter income deficit is the smallest deficit since the time series began in the March 1987 quarter.

Income from New Zealand investment abroad was $658 million this quarter, an increase of $149 million from the June 2009 quarter. Earnings of New Zealand owned subsidiaries operating abroad increased by $201 million this quarter as New Zealand direct investors earned a net $210 million on their overseas equity investments. This increase in income was partially offset by a fall in income accruing to New Zealanders with portfolio investments abroad. Dividends received on overseas shareholdings decreased by $28 million, interest received on debt securities issued by non-residents was also down.

Income from foreign investment in New Zealand was $1,232 million in the September 2009 quarter, a decrease of $643 million from the June 2009 quarter. The main driver of the fall in income was a $475 million decrease in profits earned by foreign owned companies operating within New Zealand. Foreign owned companies lost a net $317 million in the September 2009 quarter, the first time a loss has been recorded for this time series. Similarly to the June 2009 quarter, the September 2009 result has been affected by unusually large company tax adjustments.

Tax adjustments of $1,366 million were identified as being brought into account by several large foreign owned banks during the September 2009 quarter. Company tax is a transaction between the resident entity and the resident tax authority. The income attributable to foreign investors measured by the Balance of Payments is the net profit after tax. If these tax effects are removed for the June 2009 and September 2009 quarters, profits earned by foreign owned companies operating within New Zealand increased by $230 million, from $819 million in the June 2009 quarter to $1,049 million in the September 2009 quarter.

Income earned by non-resident portfolio investors on their New Zealand investments was also down in the September 2009 quarter. Interest paid by resident entities on debt securities fell $65 million compared with the June 2009 quarter. Interest paid on debt securities fell for the seventh consecutive quarter to under half the amount paid since the peak of $1,010 million in the December 2007 quarter. Interest paid by New Zealand entities on foreign loans and deposits also fell during the September 2009 quarter. 

The year ended September 2009 investment income deficit was $7,977 million, a decrease of $5,751 million when compared with the year ended September 2008 investment income deficit of $13,728 million. Profits earned by foreign owned companies operating in New Zealand were down $4,345 million. If the tax adjustments are removed from the June 2009 and September 2009 quarters, the fall in profit for the year ended September 2009 is $2,318 million when compared with the year ended September 2008. Interest payments on debt securities and foreign borrowing and deposits decreased by $2,294 million, also contributing to the falling deficit.  

Current transfers

Current transfers are offsetting entries to transactions where goods and services are supplied or received without there being an exchange of equal value in return, such as taxes or donations. The balance on current transfers was a surplus of $99 million for the September 2009 quarter, a decrease of $189 million from the June 2009 quarter.

Current transfers into New Zealand were $461 million in the September 2009 quarter, $120 million lower than in the June 2009 quarter. This fall was due to a decrease in non-resident withholding tax (NRWT) received. NRWT is payable by foreign investors on their withholding income, such as interest and dividends received from their investments in New Zealand. The decrease in NRWT received this quarter is consistent with a fall in dividend payments to overseas investors.

Current transfers out of New Zealand were $361 million this quarter, an increase of $68 million from the June 2009 quarter. This was primarily driven by increased government expenditure on official international aid and subscriptions. 

Capital account

The capital account measures the value of assets transferred by migrants into, and out of, New Zealand, as well as the purchase and sale of intangible assets. In the September 2009 quarter, the capital account balance was a deficit of $94 million, a decrease of $47 million from the June 2009 quarter deficit.

Inflows of capital transfers rose by $49 million from the June 2009 quarter to $246 million in the September 2009 quarter. This was mainly due to an increase in migrant numbers this quarter, with migrants from the rest of the world excluding Australia contributing most to the increase in capital transfers. Partly offsetting these increases was a $25 million decrease in investment transfers during the quarter.

Capital transfers out of New Zealand were $340 million in the September 2009 quarter, little changed from the June 2009 quarter. An increase in the number of people of non-Australian or New Zealand origin returning to their home countries was offset by a fall in the number of New Zealanders moving to Australia.

Financial account and International Investment Position (IIP)

Financial account (flows)

A $3.6 billion net capital inflow into New Zealand was recorded in the September 2009 quarter. This was the result of $8.2 billion of foreign investment into New Zealand, which was partly offset by $4.6 billion of New Zealand investment overseas. Both the inflow of foreign investment into New Zealand and the outflow of New Zealand investment abroad are significantly larger than the June 2009 quarter.

The main features of the $8.2 billion foreign investment in New Zealand in the September 2009 quarter were the inflows of portfolio investment ($5.1 billion) and other investment ($3.0 billion). Portfolio investment was mainly driven by the banking sector issuing short term debt securities that were purchased by overseas investors. The main contributors to other investment were bank borrowings in the form of loans, and $1.6 billion liabilities of the New Zealand Treasury arising from new allocations of Special Drawing Rights (SDRs). This treatment of SDR related liabilities differs from treatment in previous quarters. Please refer to the Technical notes of this release for more information about the updated treatment of SDRs.

Inflows of foreign direct investment were $0.1 billion, as debt and equity finance to New Zealand subsidiaries was nearly offset by a $0.6 billion divestment of reinvested earnings. The negative reinvested earnings was primarily caused by unusually large company tax adjustments, brought into account in the September 2009 quarter. Please refer to the investment income section of this release for more information regarding the tax adjustments.

The $4.6 billion outflow of New Zealand investment abroad in the September 2009 quarter featured significant net investment across most categories. Portfolio investment abroad of $1.7 billion was primarily the result of New Zealand fund managers investing in overseas company shares, and debt securities issued abroad. The key feature of the $1.3 billion of transactions increasing reserve assets were allocations of SDRs from the IMF. The treatment of SDRs as a transaction is different from that of past quarters (see Technical notes). Of the $1.1 billion 'other investment' abroad, the main transactions were deposits and loans, mainly by the New Zealand banking sector. New Zealand direct investors made a $0.5 billion net investment in their overseas subsidiaries during the quarter. 

Reconciling the September 2009 quarter financial account and the International Investment Position (IIP)

The reconciliation table below shows both the transaction and non-transaction causes of the shift in the net IIP from the position at 30 June 2009 to the position at 30 September 2009. The IIP is defined in the technical notes of this publication along with the associated term net debtor position. 

 

As at 30 September 2009, New Zealand's net international debtor position was $173,306 million, an increase of $1,560 million (0.9 percent) from the 30 June 2009 net debtor position of $171,746 million. Net financial account transactions increased liabilities by $3,610 million, and were partly offset by changes in the valuation of financial assets and liabilities by $2,050 million in the September 2009 quarter.

Valuation changes arise from changes in exchange rates, market prices of assets and liabilities (for example, shares), market values of financial derivative contracts, and other valuation changes arising from changes in accounting policy (for example, contingent liabilities) and accounting treatments (for example, write-offs and write-downs). Comparing the 30 June 2009 quarter with the 30 September 2009 quarter, the main impacts were from the generally appreciating New Zealand dollar and rising global share markets.

• Market price and other valuation changes. Market values in the overseas share markets in which New Zealand funds are principally invested were between 2 and 22 percent higher at 30 September 2009 compared with 30 June 2009. This was partly offset by New Zealand direct investors reducing the value of their overseas subsidiaries in the September 2009 quarter due to write-downs. The overall effect was a reduction in the net debtor position by $1,711 million.
• Exchange rate changes reduced the net debtor position by $502 million in the September 2009 quarter. The New Zealand dollar appreciated against most of the currencies in which New Zealand's foreign assets and liabilities are primarily held. An appreciation of the New Zealand dollar reduces the New Zealand dollar value of foreign currency assets and liabilities.

 

International Investment Position

This commentary discusses the presentation of New Zealand's international assets and liabilities as shown in tables 10-13.

At 30 September 2009, New Zealand's net international debtor position was $173.3 billion. The net debtor position has varied within a relatively narrow range of $171.7 billion to $173.5 billion over the period 31 March, 30 June and 30 September 2009, with the net debtor to GDP ratio ranging between 93.3 percent and 94.4 percent. This compares with a net debtor position  one year ago, at 30 September 2008, of $161.3 billion (88.3 percent of GDP).

 

The increase in the net international debtor position between 30 June 2009 and 30 September 2009 was driven by a $2.0 billion increase in net international debt, partly offset by a $0.4 billion fall in the international equity debtor position. The official sector was the main contributor to the $2.0 billion increase in net international debt. This quarter the net international debt for the monetary authorities sector and the general government sector rose by $1.3 billion and $0.7 billion, respectively. This reflects a higher overseas holding of New Zealand government bonds. The banking sector net overseas debt position also rose, offset by a fall in the corporate sector net debt.

 

Overseas debt with a time to maturity of one year or less was 42.0 percent of the total at 30 September 2009, compared with 44.2 percent at 30 June 2009, and 51.5 percent at 30 September 2008. Overseas debt with a time to maturity of one year or less as a proportion of total overseas debt has been trending down since September 2008.   

Next release ... 

Balance of Payments and International Investment Position: December 2009 quarter will be released on 24 March 2010.

For technical information contact:
Peter Roche
Wellington 04 931 4600
Email: info@stats.govt.nz

Revisions

The tables below present a summary of revisions to the June 2009 quarter BoP and IIP major components, as a result of new or improved data.