This week’s chart explores the contribution of the trade balance in the balance of payments to the evolution of New Zealand’s high external debt ratio.
The issue is significant because of the popular myth that the high net external debt ratio today results from a chronic inability of New Zealanders to save enough, for example, in the last two decades. This, it is thought, is the cause of the chronic balance of payments current account deficits since 1974. In reality, what was driving the deficits between around 1990 and 2004 was the cost of serving the net external debt built up by 1990.
This savings myth is bolstering the drive to force or subsidise today’s working age New Zealanders to save more.
The red line on the chart shows New Zealand’s net external liabilities as a percentage of GDP. It uses two time series published by the Reserve Bank of…
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Utopia, you are standing in it! 
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