Posts Tagged: government debt


Moody’s Investors Service says that its outlook on Australia’s Aaa sovereign rating remains stable, despite the higher budget deficits announced in the government’s mid-year economic and fiscal outlook (MYEFO) on 15 December. 

The MYEFO forecasts that the Commonwealth government’s FY 2014/15 fiscal deficit will be 2.5% of GDP, higher than 1.8% of GDP (excluding net future fund earnings) estimated in the FY 2014/15 budget announcement in May. 

In addition, deficits for the next four years will be higher than were estimated in the May budget announcement. According to the MYEFO, the budget will not return to balance in FY 2018/19 as was expected in May, and while it will return to surpluses between FY 2019/20 and FY 2024/25, these surpluses will be lower than was forecast previously. 

Consequently, whereas the May budget had anticipated that net debt would peak at 14.6% of GDP in FY 2016/17 before falling to 0.7% of GDP in FY 2024/25, the MYEFO expects net debt to peak at 17.2% of GDP in FY 2016/17 and to decline to 4.7% of GDP by FY 2024/25.  >> Read More

Hungry for foreign money

13 December 2014 - 15:35 pm

The gold and silver that Indians imported last year, for reasons other than re-exporting as jewellery, was about $25 billion. They preferred investing in gold to alternatives like putting money in productive assets. Meanwhile, the value of Indian debt bought by foreigners last year was about $30 billion. These trends have continued into the current year; indeed gold imports quantities have gone up as prices have fallen. So we have been taking debt from the rest of the world, and spending most of the dollars so brought in to import gold. Not a very clever thing to do, is it?

The flip side of this equation is that, even as companies raise funds by selling debt paper overseas, banks in the country complain that companies don’t look to them for finance; that there is no demand for credit. Domestic credit growth, at 10-11 per cent, is the slowest in all years other than the crisis year of 2009; indeed it may be slower than the growth in nominal gross domestic product (which is real growth plus inflation).

The explanation for these aberrations – “aberrations”, because they are not sustainable – is that the world is awash in cheap money. Record sums out of the excess liquidity have come into India as debt paper because this country has attractive interest rates. The same high interest rates at home are what encourage companies to access cheaper capital overseas. Meanwhile, some of the money flowing in has gone into equity, and boosted share prices to unsustainable levels. Remember that our stock market is dominated by foreign institutional investors; domestic investors play only bit roles. The inflow of cheap capital has also kept the rupee at a high level, making exports uncompetitive and broadening the current account deficit despite falling oil prices. The whole equation helps foreign players, not Indians.

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 Fitch Ratings has downgraded France’s Long-term foreign and local currency Issuer Default Ratings (IDR) to ‘AA’ from ‘AA+’. This resolves the Rating Watch Negative (RWN) placed on France’s ratings on 14 October 2014. The Outlooks on France’s Long-term ratings are now Stable. The issue ratings on France’s unsecured foreign and local currency bonds have also been downgraded to ‘AA’ from ‘AA+’ and removed from RWN. At the same time, Fitch has affirmed the Short-term foreign currency IDR at ‘F1+’ and the Country Ceiling at ‘AAA’.

The downgrade reflects the following factors and their relative weights:

When it placed the ratings on RWN in October, Fitch commented that it would likely downgrade the ratings by one notch in the absence of a material improvement in the trajectory of public debt dynamics following the European Commission’s (EC) opinion on France’s 2015 budget. Since that review, the government has announced additional budget saving measures of EUR3.6bn (0.17% of GDP) for 2015, which will push down next year’s official headline fiscal deficit target to 4.1% of GDP from the previous forecast of 4.3%. On its own, this will not be sufficient to significantly change Fitch’s projections of France’s government debt dynamics.

The 2015 budget involves a significant slippage against prior budget deficit targets. The government now projects the general government budget deficit at 4.4% in 2014 (up from 3.8% in the April Stability Programme with the slippage led by weaker than expected growth and inflation) and 4.1% in 2015 (previously 3.0%), representing no improvement from the 4.1% of GDP achieved in 2013. It has postponed its commitment to meet the headline EU fiscal deficit threshold of at most 3% of GDP from 2015 until 2017. >> Read More

  • The United Kingdom has high monetary, labor, and product-market flexibility, and a wealthy and diversified economy.
  • Output and employment growth have exceeded our previous projections, but the U.K.’s fiscal position has underperformed our expectations and has yet to reflect a strengthening economy.
  • We are affirming our ‘AAA/A-1+’ long- and short-term sovereign credit ratings on the U.K.
  • The stable outlook reflects our assumptions that the U.K. fiscal position will gradually strengthen as real-wage and productivity growth improve toward pre-crisis averages, and that the government that emerges from the May 2015 general election will remain committed to fiscal consolidation. Our outlook also assumes the U.K.’s ongoing EU membership.

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 Fitch Ratings has placed Japan’s ‘A+’ Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) on Rating Watch Negative (RWN). The issue ratings on Japan’s unsecured foreign and local currency bonds have also been placed on RWN, as has the sovereign’s Short-term IDR of ‘F1+’. At the same time, Fitch has affirmed the Country Ceiling at ‘AA+’.

Fitch will look to resolve the RWN during the first half of 2015 in light of the next government’s fiscal plans and updated fiscal and economic projections.


The RWN reflects the following factors:

- The Japanese government’s decision to delay a consumption tax increase originally scheduled for October 2015 until April 2017 will meet a negative sensitivity identified in Fitch’s May 2014 sovereign credit review of Japan, unless broadly equivalent and permanent fiscal measures are announced in the forthcoming budget, which Fitch considers to be unlikely. The delay implies it will be almost impossible to achieve the government’s previously-stated objective of reducing the primary budget deficit to 3.3% of GDP by the fiscal year April 2015-March 2016 (FY15). It additionally implies a greater risk to the government’s longer-term objective of eliminating the primary deficit and stabilising the government debt to GDP ratio by FY20, unless a future government is willing to impose a tighter fiscal squeeze over FY15-FY20 than previously envisaged. >> Read More

BIS sounds alarm over resurgent dollar

08 December 2014 - 6:22 am

Global financial policy makers have sounded the alarm about the impact of a resurgent US dollar on emerging markets, where companies have racked up large debts denominated in the American currency.

The Bank for International Settlements, known as the central bankers’ bank, warned on Sunday in its Quarterly Review that a prolonged rally in the dollar could expose financial vulnerabilities in emerging markets by damaging some companies’ creditworthiness.

The Basel-based organisation added that there were increasing signs of fragility in financial markets, despite renewed hopes for economic growth, pointing to the recent stress in the $12.3tn US Treasury market that serves as the bedrock of the global financial system.

“To my mind, these events underline the fragility — dare I say growing fragility — hidden beneath the markets’ buoyancy,” said Claudio Borio, the head of the BIS’s monetary and economic department. >> Read More


Moody’s Investors Service today downgraded the Government of Japan’s debt rating by one notch to A1 from Aa3. The outlook is stable.

The key drivers for the downgrade are the following:

1. Heightened uncertainty over the achievability of fiscal deficit reduction goals;

2. Uncertainty over the timing and effectiveness of growth enhancing policy measures, against a background of deflationary pressures; and

3. In consequence, increased risk of rising JGB yields and reduced debt affordability over the medium term.

The A1 rating reflects the government’s significant credit strengths, including a large, diverse economy with a strong external position, very high institutional strength and a very strong domestic funding base.

The stable outlook reflects the broad balance between upside risks including significant fiscal consolidation and a resumption of economic growth, and downside risks including intensification of deflationary pressures and loss in economic momentum.

The rating action does not affect Japan’s Aaa foreign currency, local currency country and bank deposit ceilings. Those ceilings act as a cap on ratings that can be assigned to the obligations of other entities domiciled in the country. >> Read More


A lower oil price should be a stimulant for US growth but a depressant for inflation expectations. The bond market has, for now at least, decided that the latter is more important.

With WTI, the US benchmark, down 6.4 per cent at close to $69, the yield on the ten-year Treasury note on Friday revisited the 2.2 per cent mark for the first time since a day of panic in October sent the yield to 1.9 per cent.

This year’s rally in Treasuries has defied the early consensus that yields would rise as faster US growth forced the Federal Reserve to raise interest rates for the first time since the financial crisis.

Although US growth has quickened – it reached a 3.9 per cent pace in the third quarter – inflationary pressures remain muted and have given the Fed more scope to delay introducing higher interest rates.

Against such a backdrop, Treasury yields have looked more attractive – an allure sharpened as yields on eurozone government debt plummet.

The yield on the ten-year German bund dropped below 0.7 per cent this week.


Country’s public debt increased to Rs 49.6 lakh crore at the end of the July-September quarter of 2014-15, up 2.8 per cent over the previous quarter.

“The Public Debt of the Central Government (excluding liabilities under the ‘Public Account’) provisionally increased to Rs 49,60,472.3 crore as at end-September 2014 from Rs 48,27,485.6 crore at end-June 2014,” a Finance Ministry report said.

It further said the internal debt constituted 91.7 per cent of public debt at end of July-September quarter, compared with 91.5 per cent at the end of the previous quarter.

Marketable securities accounted for 83.9 per cent of total public debt as compared with 83.5 per cent as at end-June 2014.

 “The outstanding internal debt of the government at Rs 45,49,351.3 crore increased marginally to 40.1 per cent of GDP at end September 2014 from 38.9 per cent as at end-June 2014,” it said.

The external debt amounted to about Rs 4.11 lakh crore. >> Read More


The European Central Bank’s plans for €1 trillion of monetary stimulus is fraught with risk and is likely to fail without full-blown bond purchases, Standard & Poor’s has warned.

The agency said the ECB’s blitz of ultra-cheap loans to banks (TLTROs) cannot generate more than €40bn of net stimulus once old loans are repaid, given regulatory curbs imposed on lenders.

Jean-Michel Six, the agency’s chief European economist, said ‘doves’ on the ECB’s governing council know that the loan plan is unworkable but are going through the motions in order to persuade German-led ‘hawks’ that all conventional measures have been exhausted, even if this means a debilitating delay.

“Risks of a triple-dip recession have increased,” said Mr Six. “The ECB has one last arrow and that is quantitative easing of €1 trillion, needed to restore the M3 money supply to trend growth.”

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Team ASR,
Baroda, India.