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War Economy

The Rising Cost of Invisibles1

The Rising Cost of Invisibles1

In the last decade attempts to relax or remove import controls have been hindered by a quite rapid rise in debt servicing, travel payments and other ‘invisible’ items of overseas expenditure, which have taken an increasing portion of New Zealand's export earnings. To some extent the method of administration of import licensing has aggravated this difficulty.

Concentration of external economic policy thinking on changes in the net overseas assets of the banking system has led to ‘no-remittance’ imports receiving favoured treatment for import licensing. A formal no-remittance scheme for holders of overseas funds was first introduced in 1950, but has since been modified There has also been a tendency to favour imports in some other cases, where suppliers will not expect payment through normal banking

1 ‘Invisibles' is here used to mean payments becoming due to foreigners, excluding those for imports or capital transfers, less payments due by foreigners, excluding those for exports or capital transfers. Important items are transport costs (£22 million net in 1962–63), investment income (£26 million) and travel (£11 million).

page 553 channels, for example, where a capital investment is being built up in New Zealand. Successive governments have failed to realise that this tends gradually to build up a net outflow of invisible payments to people in other countries, who have thus established claims on the New Zealand economy.

The rising cost of overseas transport and the increasing tendency of New Zealanders to travel have also added to the net outflow of invisible items which have to be paid for in the main out of export earnings, so restricting the amount available to meet the cost of imports.

It was inevitable, in any case, with the overseas deficit on current account averaging £25 million a year between 1951–52 and 1962–63, that the cost of servicing of private and government debt1 would build up quickly.

Chart 85 shows changes in the net deficit on invisibles expressed as a percentage of export earnings.

chart of export statistics

Chart 85

In the three years 1950–51 to 1952–53 the net cost of invisibles averaged 16 per cent of export earnings.2 In 1960–61 to 1962–63 it averaged 25 per cent. By far the most significant change was in

1 Including dividends accruing to overseas shareholders, interest on loans, etc.

2 Comparable earlier figures are not available.

page 554 income on investments,1 where New Zealand in 1950–51 paid £7 million more than she received, and in 1962–63 £26 million more. This item represented 3.3 per cent of all export earnings in 1950–51 and 8.4 per cent in 1962–63. Much of the benefit of wartime restraints on overseas borrowing had been lost.

1 Including private investment as well as government and local authority loans. The figures refer to accruals rather than to actual remittances. A good deal of private investment income is reinvested in the country where it is earned.