Govt unhappy with Fitch's new outlook

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Jul 17, 2008, 12:12:08 AM7/17/08
to Kences1
Officials in the finance ministry are not happy with credit rating
agency Fitch's revision of India's local currency outlook to negative
from stable.


Officials say Fitch's conclusion that the central government's fiscal
deficit will rise to 4.5 per cent of gross domestic product (GDP) in
2008-09, as against 2.8 per cent in the previous fiscal, is wrong.

"The fiscal deficit will be contained within the FRBM (Fiscal
Responsibility and Budget Management) Act mandate of 3 per cent this
year", said a ministry official.

Fitch had yesterday said the revision was based on considerable
deterioration in the central government's fiscal position in 2008-09
and a notable increase in debt issuance to finance subsidies not
captured in the Budget.

However, finance ministry officials do not agree. "The interest rate
burden for existing debt of the government is fixed. The escalation in
cost will only be in case of new borrowings as the coupon rate for
existing debt is fixed. The only other pressure point is the Sixth Pay
Commission award, which is yet to be finalised but has already been
factored in," said an official.

For fiscal 2008-09, the central government has targeted a fiscal
deficit of 2.5 per cent of GDP, while keeping an additional headroom
of 0.5 percentage points on account of the expected rise in the wage
and arrears bill.

Officials said the Fitch outlook had been shared with the finance
ministry before it was made public, adding that the revision was of
little consequence as the agency had not changed the foreign currency
outlook but only the domestic outlook for the rupee. "This does not
change the situation for foreign investors," said the official.

N.Sukumar
Research Analyst
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