My research note last week highlighted a massive mystery. Between 31 March 2009 and 30 September 2023, New Zealanders spent $158 billion more overseas than we earned on current account.

We needed $158 billion of incoming capital to fund that deficit spending. We would expect our net borrowing overseas to be of a similar magnitude.

However, Statistics New Zealand could only identify a funding inflow of $106 billion. SNZ does not know where the other $52 million came from. Neither do we. SNZ attributes it to “errors and omissions”.

My research note, “The mystery of the $52 billion gift: Does New Zealand have a fairy godmother”, documented this in detail.

This mystery raises some concerning questions. Is New Zealand’s true indebtedness much higher than we think? Are the deficit estimates too high, or have we borrowed a lot more than SNZ has been able to measure?

The relatively small $32 billion decline in New Zealand’s net international investment position is a related puzzle. This position measures how much more we owe overseas than overseas owes us. The $32 billion decline accounts for only a third of the $106 billion of funding SNZ knows about. Where did the other $74 billion come from?

It turns out that $27.6 billion of the $74 billion came from capital inflows largely attributable to insurance payouts by global reinsurers. These can be triggered by major natural disasters, such as the Christchurch earthquakes. Obviously, this is not a reliable long-term funding source.

The remaining $46.6 billion of the $74 billion came from valuation gains, such as the recent rise in global interest rates that reduced the market value of our overseas debt. We cannot count on such favourable valuation gains in future.

The mystery became more prominent after Covid-19, when New Zealand's current account deficits ballooned due to the loss of tourism and international student income. Almost half of the $62 billion in deficits from December 2021 to September 2023 was 'funded' by the mysterious "errors and omissions."

Interestingly, Australia’s statistics don’t have the same issue. This mystery is specific to New Zealand.

My report calls for SNZ to investigate and resolve this statistical discrepancy. New Zealand may be in a much deeper hole of overseas debt than we realise. Figuring out this $52 billion mystery should be more of a priority.