WELLINGTON (Reuters) - New Zealand faces billions of dollars in damage from the powerful earthquake that hit the country on Monday, but the government’s strong balance sheet means it will have little trouble footing the bill, officials and economists said.
Central New Zealand was hit by a 7.8 magnitude earthquake just after midnight, killing at least two people, destroying road and rail links and damaging hundreds of buildings. Strong aftershocks continued throughout Monday.
“You’ve got to believe it’s in the billions of dollars to resolve,” Prime Minister John Key said in a statement emailed to Reuters.
Despite the widespread damage, the financial fallout would pale in comparison to the 2011 quake in the city of Christchurch that killed 185 people and required a NZ$40 billion ($28 billion) rebuild that is still being completed.
“This hit largely rural areas in small towns so it’s not really comparable to Canterbury, which hit the biggest city in the South Island,” said Ilan Noy, chair of disaster economics at Victoria University in Wellington.
The small South Island tourist town of Kaikoura, a popular spot for whale watching, appeared to have borne the brunt of the latest quake. The town was cut off by landslips that covered road and rail links in both directions.
Two years of budget surpluses and low government debt meant the cost of the quake was unlikely to hit the economy hard or require the government to issue bonds, according to analysts.
“It does look like at this early stage - it is early, aftershocks are still occurring - economic consequences look relatively manageable,” said ANZ senior economist Philip Borkin.
Key’s center-right government made it a priority in recent years to balance its books and reduce government debt, which equaled around 24.6 percent of the country’s GDP in the year ending July. It reported a surplus of NZ$1.83 billion for the same year.
“From a national perspective we can easily pay for it,” said Victoria University’s Noy.
Much residential damage from the quake would be covered by government-owned insurer the Earthquake Commission (EQC), which was also backed by reinsurance.
“EQC has about NZ$4.7 billion of reinsurance,” EQC chief executive Ian Simpson told Radio New Zealand. “We still have some other financial resources, but at the end of the day, we still have access to a Crown (government) guarantee, so there are no circumstance where EQC can’t process claims.”
Most major commercial insurance companies said they were still assessing the damage and that it was too early to tell the volume of claims.
“We have a reinsurance program in place and expect this event to fall within our net large risk and catastrophe allowances,” a spokeswoman for QBE Insurance said.
Additional reporting by Jamie Freed in SYDNEY; Editing by Lincoln Feast and Paul Tait
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