China’s 2020 fiscal deficit target to exceed 3%: economists

By Li Qiaoyi Source:Global Times Published: 2020/5/14 20:03:40

File Photo: Xinhua

China is on track to set its annual fiscal deficit target beyond 3 percent for 2020 - one of the most-watched economic goals to be unveiled at the forthcoming annual two sessions -to pump more support into its coronavirus-hit economy, experts said. 

"An active fiscal policy needs to be more active, out of the practical need to hedge against the downward pressure on the economy," said an article by Finance Minister Liu Kun posted on the ministry's website on Thursday.

A more active fiscal policy, pursued through an appropriate rise in the budget deficit ratio, as well as issues of anti-virus special-purpose government bonds, and an increase in local government special-bond issues, can help buffer short-term shocks and challenges facing the economy, read the article, revealing no specific targets.

The budget deficit is likely to be raised to 3-3.5 percent of GDP for this year, Tang Jianwei, chief macro analyst at the Financial Research Center of Bank of Communications, told the Global Times on Thursday. 

The Finance Ministry set the fiscal deficit target at 2.8 percent of GDP for 2019, up by 0.2 percentage points from the prior year.

A larger budget deficit this year would serve to stabilize the nation's infrastructure investment and its shaky job market, as well as to channel more funding to small and medium-sized businesses that have taken a battering from the virus onslaught, Tang said.

In a note sent to the Global Times, UBS chief China economist Wang Tao predicted the budget deficit would be raised to 3.5 percent of GDP this year.

Wang reckoned that fiscal support would not be entirely reflected in the general budget deficit, but would instead be scattered across the general reading, the government funds budget that relies mostly on financing from land sales and special-purpose local government bonds, and the social security budget. There would be quasi-fiscal spending at the local level as well, she added.

Adding to his pledge to expand the budget deficit, clearly sending an active signal to lift market confidence, Liu addressed woes over fiscal revenue versus spending in the article, which was originally run by the People's Daily on Thursday.

The COVID-19 outbreak has had a huge impact on fiscal revenue growth. Fiscal revenue fell year-on-year in the first quarter, and it's believed that this year's general public fiscal revenue will decline from 2019, according to his article. 

The government will tighten its belt, with central government departments leading the austerity push through strict curbs on various general spending. Local governments are supposed to maintain tough controls on meetings and travel costs, and they are banned from starting to build new government facilities or expanding existing ones, the finance minister stressed. 

He also vowed to prevent and mitigate hidden risks and hazards involved in local government debt, calling for efforts to avoid systemic and regional risks. 

Posted in: ECONOMY

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