Record budget deficit forecast

Source: Xinhua  |   2009-3-6  |     NEWSPAPER EDITION

CHINA has projected a record budget deficit of 950 billion yuan (US$139 billion) for this year as the country boosts spending to cushion the impact of the global downturn.

Despite its size, the deficit accounts for less than 3 percent of China's gross domestic product, Premier Wen Jiabao said yesterday in his government work report.

"The ratio of the cumulative balance of outstanding government bonds to GDP, which is around 20 percent, is within the acceptable range of what our overall national strength can bear and is therefore safe," he told the deputies to the National People's Congress.

Declines in China's budget deficits in previous years provide room to issue more bonds this year, Wen said as he gave the government work report.

China set this year's central government deficit at 750 billion yuan, 570 billion yuan more than last year. In addition, the State Council will allow local governments to issue 200 billion yuan worth of government bonds through the Ministry of Finance, which will go into provincial budgets.

The 950 billion yuan deficit is nearly three times China's previous high of 319.8 billion yuan in 2003.

The expansion is "in the safe range," said Jia Kang, president of the ministry's Institute of Fiscal Science.

A country's fiscal condition is viewed as risky if the deficit accounts for more than 3 percent of GDP or outstanding government bonds exceed 60 percent of GDP, according to international practices.

The safety line is not a universal standard and can vary country by country, according to Vivek Arora, the International Monetary Fund's senior resident representative in China.

But by implementing a prudent fiscal policy in previous years - reflected in low deficits and debt - China has created "fiscal space" it can now use to fight the downturn, Arora said.