The Ministry of Finance yesterday decided to change the definition of the government debt level in such a way that will give it increased leverage to issue government bonds up to NT$164.5 billion (about US$5.17 billion) without raising the 15 percent cap on the bond to annual budget ratio.
The new definition means that government bond issuance will not include government bonds issued to pay off outstanding government debt.
However, while the increased leverage will ease the government's deficit problems, economists and analysts warned of the negative impact on the economy of issuing more government bonds. It is also too early for the government to issue overseas bonds, they said.
"Counting only the net value of debt does correspond with sound financial principles," said Hu Sheng-cheng (
The government should be very cautious, Hu said. "Issuing government bonds may push up interest rates, which would hurt investment and future economic development," he warned.
"For a country that is not regulated by a public debt law (
As for issuing overseas government bonds, although it may avoid a crowding-out effect on local investment, for the time being the government should wait, Hu said.
"The local bond market first needs to be well-established. Right now, bonds make up only a little more than 10 percent of our total financial commodities.
"So the situation is often that more bonds are supplied than wanted."
Issuing government bonds overseas has another risk, Hu said. Since the bonds would be valued in US dollars, the financial risk to the government would be increased by the exposure to currency fluctuation.
Meanwhile, issuing government bonds in Japan would suffer from unfavorable interest rates there.
"Although the interest rate of ten year maturity bonds is only 1.9 percent, Japan has a negative inflation rate of 5 percent.
"So the real interest rate in Japan is equal to or above our interest rate level, which is 6.205 percent," said Arthur Wu (
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