Attacking the Current Account Deficit problem: a DIY approach for Kiwis

There’s been a bit of talk about New Zealand’s current account deficit lately e.g. (1), (2), (3) – probably because it looks like borrowing to fund the deficit is becoming much more difficult (The current account deficit is the difference between what the country earns from overseas and what it spends overseas).

New Zealand hasn’t had an annual  current account surplus since 1973, and if we don’t turn things around soon it seems we may be back to the bad old days of Finance Ministers going cap-in-hand to the world’s financial centres to beg for loans, and/or facing a significant decline in the value of the New Zealand dollar. Being in such an indebted and vulnerable position undermines our economic sovereignty, as we can less and less afford to do anything that upsets our foreign moneylenders.

In the Kiwi summer DIY spirit I thought I’d offer a simple (some might even say simplistic) approach to tackling this problem…if we try it, it won’t happen overnight, but it will happen 🙂

We can see the gradually worsening trend in our current account easily if we look at a chart – this one uses data provided by the Reserve Bank.

Current Account as % GDP - New Zealand