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Borrowing beyond borders

Risks from New Zealand's reliance on overseas debt

A Special Topic from the May 2025 Financial Stability Report.

Reuben Beard and Hubert Lai

Published date:

Overseas borrowing allows New Zealand to consume and invest more than we save domestically. However, our dependence on overseas debt is important for financial stability because it can create risks for our financial system.

We are interested in external funding risks now because of the following.

  • International developments that affect foreign investor confidence are increasing in frequency.
  • The current account has widened in recent years, increasing the need for overseas borrowing.
  • New Zealand’s net foreign liabilities are elevated relative to peers.

Key points 

The key points outlined in the full report are as follows. 

  • The key risk to external funding is international and domestic developments that affect foreign investor confidence. A drop in investor confidence can increase borrowing costs, depreciate the New Zealand dollar, create difficulties in rolling over existing debt, and painful adjustments in the economy.
  • New Zealand banks are well prepared to respond to external funding pressures. Reliance on overseas debt is less risky than it was during the GFC. Overseas debt is now a smaller share of GDP, and loan maturity is longer, making the system more resilient.
  • Currently, low credit demand and strong deposit growth mean banks are less reliant on external funding. Banks are well placed to borrow internationally when credit demand grows.

Figure 2.2 Net foreign liabilities of OECD countries (Share of nominal GDP) 

Figure 2.2 Net Foreign liabilities of OECD countries

This bar chart compares New Zealand’s net foreign liabilities with those of other OECD countries in 2023. As a percentage of nominal GDP, New Zealand’s net foreign liabilities are higher than in most other advanced economies, highlighting our reliance on overseas funding.