Government may dip into 'rainy day' fund if coronavirus worst-case scenario plays out, Finance Minister says

Finance Minister Grant Robertson says "in some senses" the Government's "rainy day" fund has been saved for an event like the Covid-19 coronavirus outbreak.

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Grant Robertson talked to TVNZ1’s Breakfast about how New Zealand’s economy will be hit by the outbreak. Source: Breakfast

With nearly 3000 deaths and more than 80,000 people infected so far by the respiratory virus which started in Wuhan, China, there's talk of the world being on the brink of a pandemic. New Zealand doesn't yet have a case but that's unlikely to last indefinitely, experts have said. 

While it's already had an economic cost, it's uncertain what exactly the monetary impact will be, Mr Robertson told TVNZ1's Breakfast this morning.

But when asked by Breakfast host Hayley Holt if an event like this is what the Government had been saving it's "rainy day" fund for, Mr Robertson said : "In some senses, yes."

"It's important to be careful how we manage our economy as we don't know what's going to come along at any turn. In this case, it's a virus, but we are in good shape to deal with it," he said.

"We have very low debt relative to the rest of the world, we've had a strong set of books over the last couple of years and forecast to go back into surplus in the next couple of years, so we are well positioned to deal with it."

The Treasury today released the Crown accounts for the seven months to January. 

The operating balance before gains and losses (OBEGAL) is close to forecast with a surplus of $1.4 billion. Core Crown Expenses were also close to forecast at $53 billion and net core Crown Debt was $0.4 billion lower than forecast at 19.5 per cent of GDP.

However, the monetary impact on New Zealand's economy is dependent on the coming months.

"Putting a dollar figure on the moment is pretty tough because there's so much uncertainty," Mr Robertson said.

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Government outlines plans to counter economic impact of coronavirus

The Government has been working through three basic scenarios. One is that the outbreak will be over in a few months and the economy will recover from the economic hit; the second is that it will last for the whole of 2020; and the third scenario is around managing an economic slowdown with a long-term affect.

"I think the thing we can say with certainty today is that the first quarter of this year we will see very little growth in the New Zealand economy. The hit we're taking in tourism, what we're seeing in the forestry sector and so on, that's going to have an impact [but] we can ride that out," Mr Robertson said.

"The New Zealand economy is in good shape to manage this, but it is going to have an impact."

Mr Robertson said in the past few days, with more cases of Covid-19 outside China, it was an indication that the spread would take us more towards the second scenario phase.

"If there is a case in New Zealand, and the advice we have is that it is a high probability that there will be at some point, we do see a somewhat slower recovery," he said, adding the Government had been working with sectors in new Zealand worst hit.

Mr Robertson said his message to New Zealand businesses and banks, though, was to be talking to one another about a plan to get through the event and making sure businesses are talking to their workers about what they might need to do if there's a period of time where some staff can't be at work.

And while it's not predicted at the moment, Mr Robertson said the Government is planning for the worst case scenario.

"That would be the time when we would need some immediate stimulus into the economy, that's what we've seen around things like the global financial crisis that countries did do that. Some countries who are seeing more dramatic affects right now are thinking about that too."