The Budget on May 19 will be a pivotal document as ratings agencies continue to focus on New Zealand's current accounts outlook.
Prime Minister John Key and Finance Minister Bill English have indicated new spending in the Budget will be kept to just health and education.
About $800 million of new spending will be slashed from the Budget to help the Government rebuild Christchurch.
Yesterday, Statistics New Zealand figures showed the December current account deficit was larger than expectedASB chief economist Nick Tuffley said the fourth-quarter current account provided a mixed result.
The quarterly deficit, on its own, was larger than expected and contributed to a widening of the overall deficit.
However, a substantial upward revision to the reinsurance claims estimate from the September earthquake in Christchurch improved the starting point of the current account balance.
Statistics NZ had an earlier estimate of $1.7 billion for the September quake and said that would be revised as more information came to hand.
The estimate was revised up by $1.86 billion to $3.56 billion, reflecting more up-to-date information from insurers.
The fourth quarter deficit was $3.5 billion compared to ASB expectations of a $2.4 billion deficit and market expectations of a $2.2 billion deficit.
The annual deficit went to 2.3% of gross domestic product in December. In September it was 2.2%.
"Over the next year, the headline current account balance will be lifted by the reinsurance flows for Christchurch quake damage. On top of the revised reinsurance estimate for the September quake, the first-quarter current account will register a strong surplus due to reinsurance inflows for the February 22 quake, likely to be upwards of $6 billion.
"Beyond this, the underlying deficit will continue to widen."
As the economy slowly improved, a lift in business profitability of foreign-owned New Zealand companies tended to widen the investment income deficit, Mr Tuffley said.
The goods deficit was expected to provide some balance on the back of an export-led economic recovery.
Consequently, the deficit was expected to settle around 5% of gross domestic product, he said.
Rating agencies would continue to focus on the current account outlook and the underlying trend of late was unlikely to dispel their concerns about New Zealand's external liabilities.
