3 Sep 2012

Treasury lukewarm on $1b pledge to IMF

7:00 am on 3 September 2012

The Treasury advised the Government to hold off from pledging $1 billion in loans to the International Monetary Fund.

The money would only be called on by the IMF in the event of a meltdown in the world economy.

But documents show officials warned the loans would increase debt and risk the disapproval of credit rating agencies.

The Treasury advised Finance Minister Bill English in April this year, that New Zealand would be a significant beneficiary of any action by the IMF to stave off a severe global downturn.

Yet it said it was not clear what damage if any there would be to the country's reputation as a good global citizen if it didn't stump up new loans.

New Zealand had already pledged $3 billion to the IMF and the Treasury recommended that the Government hold off from committing more.

It said if called on the loans would add to the Government's gross debt and could have the effect of driving up the country's borrowing costs.

In June, the Government said it would loan an additional $1 billion to the IMF if needed.

That followed pledges of half a trillion dollars from a number of IMF member countries.

At the time Mr English said New Zealand had contributed proportionately less than Australia and Singapore.