Two months ago, when we calculated that the US would need a new “debt ceiling” of $19.6 trillion to last until after Obama’s tenure, we may have been too optimistic: since the increase in the hard debt limit of $18.15 trillion which was raised at the end of October, the US appears to be growing its debt at a far faster pace than we had originally expected, and according to the latest public debt data, as of the last day of January, total US debt just hit 19,012,827,698,417.93.
This means that if the nominal US GDP as of December 31 which was $18.12 trillion grows at the 1.2% rate expected by the Atlanta Fed, total debt to GDP is now on pace to hit 105% at the next GDP tabulation, and rising fast from there.
It also means that since his inauguration in January 2009, the US debt has now risen by a whopping 78.9%, or $8.4 trillion. It was $10.6 trillion when Obama came into office.
Indicatively, the Congressional Budget Office forecasts that the national debt will hit $22.6 trillion by 2020 and will rise to $29.3 trillion by 2026.
Despite calls from many quarters, including from sections within the government, to slacken the fiscal consolidation road map in the short term and make available funds for more public investment, the Centre is likely to stick to the demanding fiscal deficit target of 3.5% of the GDP for 2016-17, according to official sources, reports Prasanta Sahu in New Delhi. The Budget managers reckon that the low global prices — most forecasters opine that until 2017, the prices won’t harden — would help them in two ways: A sharply reduced subsidy bill on oil and, to a certain extent, even on fertilisers and substantial additional revenue from excise duty hikes on diesel and petrol.
The series of excise increases on the two fuels since early November are expected to fetch around R17,000 crore in the current fiscal and close to R70,000 crore in the next fiscal.
The government also has the option of raising these taxes further in the course of 2016 to mop up additional revenue.
The Government is planning to sell the holding of SU-UTI (Specified Undertaking of the Unit Trust of India) in three blue-chip companies — Axis Bank, Larsen & Toubro and ITC Ltd — in the next few months. The stake sale, which may spill over to the next year, is expected to help devote more funds for public investment in 2016-17, according to senior government officials.
“Raising resources for increased government expenditure while keeping the fiscal deficit under control is a big challenge. Selling SU-UTI holding in these three companies will partly help expand the fiscal space,” a senior government official told
“Axis Bank is likely to be the first one,” the official added.
SU-UTI currently holds 11.66 per cent in Axis Bank, 11.27 per cent in ITC Ltd and 8.18 per cent in L&T. Based on Friday closing prices of the companies’ shares on the Bombay Stock Exchange, the stake sale in the three companies will fetch the government Rs 48,658 crore. Having set a disinvestment target of Rs 69,500 crore for 2015-16, the government has managed to raise only Rs 13,337 crore in the first 10 months.
Attempts to sell stakes in these three companies have met with stiff opposition in the past. As far as ITC is concerned, it is feared that the sale may result in majority foreign shareholding and loss of Indian control in the firm. London-headquartered British American Tobacco, which holds 30 per cent stake in the Indian cigarette-maker through different entities, has had a strained relation with the ITC management in the past.
China’s holdings of US Treasury securities increased in November 2015, according to data released Tuesday.
After selling $16bn of Treasuries in August and September, China’s holdings bounced back by $10bn in November to a total of $1.264tn, according to data from the US Treasury
China has been thought to be a major seller of US treasuries through the summer and into 2016 as it seeks to prop up its currency. Traders and analysts attributed foreign reserve selling from the likes of China to be a major cause of dislocations seen between different US interest rates.
China’s total foreign reserves, which includes other assets aside from US government bonds, increased slightly in October but continued to fall into the end of the year, according to data from Bloomberg.
Moody’s Investors Service (“Moody’s”) has today affirmed the Government of Malaysia’s issuer and senior unsecured bond ratings at A3 and changed the outlook to stable from positive.
The key drivers of the outlook revision are:
1. The deterioration in Malaysia’s growth and external credit metrics due to external pressures over the past year.
2. Macro-financial risks posed by system-wide leverage, which remains high.
3. Moody’s expectation that—despite progress on fiscal consolidation—Malaysia’s public debt burden and debt affordability will see only limited improvement over the outlook horizon.
Moody’s has also affirmed the A3 senior unsecured ratings to the US dollar trust certificates issued by Malaysia Sovereign Sukuk Berhad, a special purpose vehicle established by the Government of Malaysia. These trust certificates are considered direct obligations of the Malaysian government and its ratings automatically reflect changes to Malaysia’s sovereign rating.
In a related rating action, Moody’s has affirmed the instrument ratings on senior unsecured debt issued by Khazanah Nasional Berhad at A3. The Malaysian government guarantees these instruments.
On Friday, the kingdom confirmed it’s mulling plans to sell a stake in the company. Here’s the official statement:
Saudi Aramco confirms that it has been studying various options to allow broad public participation in its equity through the listing in the capital markets of an appropriate percentage of the Company’s shares and/or the listing of a bundle its downstream subsidiaries.
Once the study of these various options is complete, the findings will be presented to the Company’s Board of Directors which will make its recommendations to the Saudi Aramco Supreme Council.
This proposal is consistent with the broad and progressive direction pursued by the Kingdom for reforms, including privatization in various sectors of the Saudi economy and deregulation of markets, which the Company strongly supports.
Saudi Aramco would like to emphasize that this process will strengthen the Company’s focus on its long term vision of becoming the world’s leading energy and chemical enterprise. This includes prudently managing the Kingdom’s hydrocarbon resources, adding value across the value chain, reliably meeting its customers’ demand, and meeting its stakeholder and environmental commitments.
Now at 7800…So Just 400 points in next 240 sessions.
Global brokerage firm UBS Securities India Pvt. Ltd continues to be optimistic about India and has forecast the National Stock Exchange’s (NSE’s) index Nifty to be at 8,200 points based on 15-times one-year forward price-to-earnings multiple, a method used to compare current earnings to estimated future earnings.
“Consensus earnings downgrades have been a recurring theme in India for the last five years, but the >15% cut to FY16 earnings in 2015 was a record,” UBS Securities said in a note on Tuesday.
Gautam Chhaochharia, head of research at UBS Securities India, said that consensus FY16, FY17, FY18 forecasts of 10%, 20% and 18% earnings growth, respectively, still appear optimistic and UBS’s top-down estimates of 7%, 14% and 18%, respectively, imply that cuts in 2016 may remain significant at around 8%. “This will likely be broad-based across sectors,” he added.
While lower interest rates and an expected 75 basis points rate cut in 2016 should boost fixed investment and repair balance sheet, tough external environment should keep economic recovery gradual and GDP (gross domestic product) growth below potential at 7.6% and 7.8% in 2016-17 and 2017-18, respectively, UBS said.
“If the government feels pressure to revive growth and loosens its fiscal consolidation stance, it could hurt credit worthiness. We believe the level of debt and deficits constrain fiscal policy loosening,” the division of UBS AG said.
The economy is not doing as good as it was expected and the pace of reforms has slowed down, industry body CII’s President Sumit Mazumder said today.
“It (the economy) should have done a lot better. It can do a lot better. A reform like the GST would give the whole industry such a psychological boost that you would see a rapid pack of pick up in the economy,” the CII President told PTI in an interview.
Asked whether there was a slowdown in the reforms over the last few months, Mazumder said: “There is a slowdown but the reforms are still going through. So, it is not as if the reforms have totally stopped”.
He said the “pace of reforms will pick up once Parliament knows how to function”.
On GST logjam, he said, “GST has been a huge disappointment because everybody recognises the benefits of GST, on how the GDP will be impacted positively and ease of doing business will go up by quite a few notches…
“This logjam in Parliament has been a very big disappointment and sometimes you have got to draw a line between politics and what is good for the country.”
The proposed Goods and Services Tax law that will subsume all indirect taxes like excise duty, service tax and sales tax into one uniform rate, is stuck in the Rajya Sabha where the ruling NDA government lacks majority.
A day after Niti Aayog Deputy Chairman Arvind Panagariya spoke of the need to relook the CPI-inflation target of 4+/-2%, Chief Economic Advisor (CEA) Arvind Subramanian has added to this, the need to relook fiscal deficit targets and go for a more expansionary fiscal policy. With nominal GDP decelerating sharply to 8.2% this year as compared to the budget target of 11.5%, he says in the mid-year review of the economy, this will push up the national debt-to-GDP ratio and, in the case of India Inc, the flat topline will also make it increasingly difficult for highly-leveraged private firms to repay loans. Apart from that, the lower nominal GDP means the government has to cut its FY16 deficit by around Rs 25,000 crore if it is to stick to the 3.9% target – assuming no slippage in taxes or divestment, this means a sharp cut in spending. Since, the CEA says, two of the engines fuelling the economy in the past – exports and private investment – are not available in the short run, the onus has to fall on private consumption and public investment; the latter is vulnerable to some serious downsizing if commitments to fiscal discipline are to be kept. Since there is little capex likely from the private sector for at least another year or two, it is important the government keep up the pace of investments – in H1FY16, it spent Rs 1.28 lakh crore, an increase of 44% year-on-year; taken together with the states, aggregate government capital expenditure is up a whopping 0.5% of GDP. Fresh public investment would create jobs and put more money in people’s pockets, required to keep private consumption levels up. If this is not done, FY17 could turn out to be even less ordinary than FY16.
Also, with the seventh pay commission likely to add 0.65% of GDP to government expenditure, the government’s ability to raise fresh resources will also be constrained in FY17 – hiking duties in the automobile sector along with those in the petroleum sector netted extra taxes of around 0.3% of GDP; if oil prices continue to fall, there is a possibility of taxes remaining buoyant in FY17 also as more levies could be imposed, but low oil could further hit both exports and also remittances. Also, as Subramanian points out, if oil prices don’t fall more, the earlier gains to private disposable incomes will soon fade away – creating sustainable consumption demand will need some monetary policy support.