China may raise budget deficit to 4% of GDP: Official

Beijing, Feb 25: Battling the slowest growth numbers in a quarter century, China could raise its budget deficit to four per cent of the GDP or even higher to offset the impact of reduced fiscal revenue and to support broader reforms in the world's second biggest economy.

In an article published by "The Economic Daily," director of the People's Bank of China's surveys and statistics department Sheng Songcheng said the deficit increase would not incur big insolvency risks for the government.

China raised its budget deficit to 2.3 per cent of GDP in 2015, up from 2.1 per cent in 2014. A 3-per cent deficit ratio is normally considered a red line not to be crossed. But Sheng said there should not be a universal redline.

"Rather, the ratio should be determined by a country's debt balance and structure, economic conditions and interest rate levels," he said.

"The 3-per cent warning line does not fit with China's reality," he said, citing China's relatively small outstanding debt, rational structure, continued growth in fiscal revenues and solid asset of state firms as among the factors backing his conclusion.

China has an outstanding foreign debt of USD 1.53 trillion at the end of September last year, according to the data from the country's forex regulator.

Most of the debt owed to foreign creditors resulted from short-term borrowing, as outstanding external debt with a term of one year or less accounted for 67 per cent of the total, while long and medium-term outstanding external debt accounted for 33 per cent, the State Administration of Foreign Exchange (SAFE) said last year.

Also China is saddled with about USD 1.8 trillion debt by the local governments, according to the 2013 estimates by National Audit Office, (NAO) estimates.

The debt was drawn from the various state owned banks which in turn piled up pressure on the finances of the banks. Last December, China's foreign exchange reserves, largest in the world, fell by USD 107.9 billion in December to 3.33 trillion at the yearend, the lowest level in more than three years, according to official data.

China's economy grew by 6.9 per cent year on year in 2015, its lowest annual expansion in a quarter of a century, prompting calls for the government to do more on the fiscal front to arrest the slowdown.

Earlier this month, vice finance minister Liu Kun said China would gradually raise its fiscal deficit ratio, increase government debt issues and set a limit on new local government debt.

PTI