Government debt may threaten growth

The government needs to seriously address its worsening fiscal problems if economic growth is to continue, pundits said over the weekend.

The government has recently proposed borrowing hundreds of billions of NT dollars next year to refinance debt and finance a record budget deficit.

"We have seen a steady increase in government debt, and the trend seems set to continue over the next two to three years," Therese Feng (馮來儀), an associate director of sovereign (Asia) for Fitch Ratings, said last week.

"Some of this is unavoidable, given the economic slowdown and the need to deal with ailing financial institutions," Feng said.

Feng was in town last week as part of the agency's annual review of Taiwan's sovereign rating and outlook. She said Taiwan's tax revenue registered negative growth since the second half of 2000, with the figures now below 13 percent of the GDP.

"Projections for a very modest growth in the government's expenditures over the next five years might be quite difficult to attain," she said. "This could make the government's goal of having a balanced budget increasingly difficult to achieve."

Government expenditures have actually increased this year to account for 25.14 percent of GNP, Lin Shang-kai (林尚愷), director of the Bureau of Finance under the Kaohsiung City Government, said. Tax revenue, on the other hand, has declined to 12.11 percent, he said.

"This imbalance has become a heavy burden on Taiwan's economic sustainability," Lin said at a seminar sponsored by the private think tank Taiwan Advocates (群策會) over the weekend.

Su Chien-jung (蘇建榮), a professor of finance at National Taipei University, said the government's financial status has undergone significant changes since the early 1990s, with regular government revenue posting little growth while public expenditures continue to rise.

The result is a predicted budget deficit of NT$238.1 billion next year, according to the Directorate General of Budget, Accounting and Statistics. As a result, the government may need to boost taxes. But it may be difficult for the government to justify raising taxes amid an ongoing economic slump, Feng said.

But the issuance of more government bonds to refinance debt may be the answer.

"If the government decided to allocate a NT$46.5 billion fund to refinance debt this year, its budget gap would be NT$284.6 billion," Su said.

As a result, outstanding loans would increase from NT$2.9 trillion to NT$3.2 trillion this year, accounting for around 30 percent of GDP, Su said.

Lin said it was crucial for the government to seek new revenue streams, which may include selling off idle public land and privatizing state-owned enterprises.