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

21 Pages Posted: 15 May 2014

See all articles by Ding Ding

Ding Ding

International Monetary Fund

Werner Schule

International Monetary Fund (IMF)

Yan Sun

International Monetary Fund (IMF) - Western Hemisphere Department

Date Written: April 2014

Abstract

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.

Keywords: External debt, New Zealand, Fiscal consolidation, Public sector savings, Private savings, Current account balances, Cross country analysis, Economic models, Net foreign liabilities, Public savings, foreign assets, international investment, financial integration, external indebtedness, net foreign assets, global financial crisis, international financial, foreign investment, foreign currency, fdi, international settlements, capital flows

JEL Classification: E62, F32, F41

Suggested Citation

Ding, Ding and Schule, Werner and Sun, Yan, Cross-Country Experience in Reducing Net Foreign Liabilities: Lessons for New Zealand (April 2014). IMF Working Paper No. 14/62. Available at SSRN: https://ssrn.com/abstract=2437297

Ding Ding

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Werner Schule

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Yan Sun

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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