Low Overseas Reserves Cause Concern

Press, Volume CVI, Issue 31108, 11 July 1966, Page 14

Low Overseas Reserves Cause Concern

Undoubtedly the largest deficit New Zealand has experienced £ 75 million compared with an estimated £65 million—was recorded in the year ended March, and because of shortterm borrowing and a drawing down of liquid reserves, the situation facing New Zealand certainly gives cause for concern, says the Institute of Economic Research’s “Quarterly Predictions of National Income and Expenditure.”

In the March quarter of 1966 exports were not as high as expected while imports were higher than expected. As a result, the surplus on the balance of payments, previously estimated at £l6 million, was only £6 million, says the publication. Forecasts for the year ended June, 1967, show some improvement, but the deficit is still very large—about £35 million. More serious is the immediate short-term situation: at the end of May total reserves stood at about £lOO million, if treasury-held securities and earthquake and war damage fund investments are included with the £63.3 million of overseas reserves of the banking system.

Within the next six months the drain on these reserves will amount to nearly £6O million which, in effect, means that, in the absence of Government borrowing, the only reserves left would be

the investments held overseas by the Government for special purposes.

Government borrowing overseas will, of course, be resorted to, and already steps have been taken in this direction. Funds will be coming to hand from the World Bank for overseas expenditure on port development, railway reequipment and electricity generation; possibly some funds will be obtained from the United States ExportImport Bank to help finance defence expenditure; and the Deputy Prime Minister (Mr Marshall) has been negotiating for substantial credit lines in Britain and Europe. In addition it is likely that the International Monetary Fund will be asked to provide “stand-by credits,” says the publication. Doubt is expressed about

an earlier assumption that imports would decline to £365 million for the year ending June, 1967. It is not believed that import controls can do the job by themselves, and it is on the basis of an expected tightening of the credit squeeze and firm fiscal policy that the figures are based.

The Budget contained measures to support the previous direct measures on investment, already taken into account, but it did not contain measures to reduce other forms of expenditure. Further, trading bank advances which were declining in the second half of last year, have increased markedly this year. With many imported raw materials free from control, the increased consumption now assumed will be accompanied by increased imports

in spite of the tighter controls, and therefore £lO million is added to the estimate of imports. The only corrective measures now left to the authorities lie in the monetary field. If the Government does not raise substantially more funds in the form of local loans, and if the credit squeeze does not reverse trends, imports will not be held to the levels assumed, and the balance of payments deficit, already serious enough, will deteriorate even further in the coming year, says the publication.