Explaining international investment position

Find out more about New Zealand’s international investment position and why it’s important.
Transcript: New Zealand’s international investment position, or IIP, shows the value of financial assets New Zealand holds abroad, and financial liabilities New Zealand owes to the rest of the world. But why is this important?

In the same way it is wise for an individual to be aware of how much debt they have and when it needs to be paid, the IIP is the equivalent for all of New Zealand.

Whereas the balance of payments measures transactions made during a quarter, like grabbing yourself a drink of water, the IIP shows what is left at a particular date.

The IIP measures balances of financial assets and liabilities; such as ownership of a company, bonds, deposits and loans. Non-resident, or overseas-based investors have a higher level of investment in New Zealand than New Zealanders invest overseas, meaning New Zealand owes more to the rest of the world than what we are owed. This is called a net liability position.

There are two ways the IIP can change: through inflows and outflows of money where money changes hands like buying or selling shares overseas, and through valuation changes such as the exchange rate. Like travelling when the exchange rate is high, your money goes further. Market price changes. For example, you could invest $5,000 in shares on the New York stock exchange, leave them alone for a couple of years and the shares may have increased in value. And other valuation changes which covers everything else.

These valuation changes can have a big impact on the net liability position. In the tail end of 2018 worldwide stock markets fell and we could see this in market price changes. The impact was so great it increased our net liability position by $12 billion to the largest on record. In the months that followed the stock markets recovered which we can see in the March 2019 quarter release. Worldwide markets have remained volatile since. For comparison, the United States has a net liability position of USD$9.7 trillion, Australia’s is AUD$1 trillion while New Zealand’s is only $164 billion. But as a percentage of GDP, the US’s position is 47 percent, Australia’s is 51 percent, while New Zealand’s is 56 percent. However, this is significantly lower than the record high of 84 percent during the global financial crisis.