Cross-Country Experience in Reducing Net Foreign Liabilities: Lessons for New Zealand

Author/Editor: Ding Ding ; Werner Schule ; Yan Sun
Publication Date: April 16, 2014
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper studies the dynamics of net foreign liabilities across a number of countries. Our historical analysis suggests that an orderly reduction in a country’s net foreign liabilities has mostly occurred when there was significant improvement in gross public savings through deliberate fiscal consolidation measures. Simulations of a dynamic general equilibrium model calibrated for New Zealand indicates that sustained government deficit reduction could improve the country’s net foreign assets by about half of the accumulated public savings. However, given New Zealand’s relatively strong fiscal positions and previous work noting structurally low household savings, an orderly improvement in New Zealand’s external position in the medium term will depend on a structural improvement in private savings.
Series: Working Paper No. 14/62
Subject(s): External debt | New Zealand | Fiscal consolidation | Public sector savings | Private savings | Current account balances | Cross country analysis | Economic models

Publication Date: April 16, 2014
ISBN/ISSN: 9781475516388/1018-5941 Format: Paper
Stock No: WPIEA2014062 Pages: 20
US$18.00 (Academic Rate:
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