05.04.2001
Gov't issues another NT$30b in bonds, approaches 15% debt-expenditure ceiling
The government yesterday issued NT$30b worth of 20-year bonds at an
average interest rate of 4.696%, bringing YtD issuance of bonds in fiscal year 2001 to
NT$210b. The issue carries the lowest interest rate for any government bond issuance to
date. Following the release of NT$180b worth of bonds in 1Q01, the government has earlier
announced its intention to sell NT$30b worth of bonds in 2Q01. With its plan to issue a
total of NT$260b in bonds in 2001, this leaves another NT$50b set for 2H01 sale.
The government's 2001 budget has set an expenditure target of NT$1.576t,
against revenue of NT$1.380t. Yesterday's issue brings the debt-to-expenditure ratio in
2001 to 13.3%, not far off the 15% statutory limit. Should the government issue as planned
a total of NT$260b worth of bonds in 2001, which we believe it will, the 15% ceiling will
be exceeded, leaving the ratio at 16.5%.
The Cabinet's proposed additional spending of NT$111.5b to revive an
ailing economy is also likely to require additional bond issuance packages in the current
fiscal year. However, we continue to remain cautious on the government's ability to go
ahead with the suggested public works projects. These plans have been on the agenda since
the beginning of the year without much progress made so far. The package has still not
received legislative approval. If the Legislative Yuan approves the Cabinet's proposal, we
expect the government to issue more bonds on top of the NT$260b already planned.
We maintain our view that the government's ability to boost domestic
demand through extra public spending in 2001 is limited - we are already in May and time
is running out for planned projects to be approved and to have any positive impact on the
economy. Furthermore, the 15% debt-to-expenditure limit will continue to circumscribe the
government's ability to raise new funds.
This begs the question of what will happen to 2001 GDP growth In 1Q01,
the Council of Economic Planning and Development (CEPD) announced a 5.2% GDP growth
forecast for the year, based on the assumption that the proposed NT$111.5b worth of extra
public spending would go ahead. The CEPD had also announced that their forecast would be
trimmed by 0.7 percentage points should the government fail to effect extra fiscal
spending to revive domestic demand. We hold that GDP growth will contract to 3.7% in 2001,
from 6.0% in 2000. We expect to see a moderate turnaround in GDP growth from 4Q01 onwards,
based on a mild recovery in exports. Meanwhile, we see no catalyst for a rebound in
domestic demand this year.
IrmakSurenkok@Primasia.com +886-[0]2-2547-8873 |
