New Zealand Faces Fiscal Challenges with Wider Deficits and Slower Growth: Standard Chartered

New Zealand’s 2025 Budget Reveals Larger Fiscal Deficit, Growth Outlook Reduced

New Zealand's 2025 Budget has unveiled a larger-than-expected fiscal deficit, with the government still aiming for a surplus by FY29. However, forecasts for economic growth have been reduced, and fiscal deficits are expected to persist throughout the next few years. Despite a reduction in bond issuance for FY25 and FY26, gross issuance for the entire four-year period has increased by NZD 4bn. Standard Chartered economists caution that if growth continues to disappoint or spending pressures resurface, the deficit could widen further.

In terms of fiscal strategy, the government has taken a short-term approach, reducing its operating allowance to NZD 1.3bn, the lowest in over a decade. Capital spending, however, remains unchanged at NZD 4bn. While the near-term issuance has been adjusted downward, longer-term borrowing has been revised upward, particularly for FY29.

The Reserve Bank of New Zealand's (RBNZ) Large-Scale Asset Purchase (LSAP) program maturities and rising debt service payments will continue to add to the fiscal burden. As the fiscal deficit widens, New Zealand faces mounting challenges in balancing its budget while managing debt levels and economic growth.

Standard Chartered economists, Bader Al Sarraf and Nicholas Chia, suggest that the budget’s short-term relief may not be enough to tackle the underlying fiscal pressures, and the path to a fiscal surplus by FY29 remains uncertain.