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China could raise budget deficit to top 4% of GDP

Thursday, February 25, 2016 - 09:51

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China could in theory raise its budget deficit to more than 4 per cent of gross domestic product to help support growth, a senior central bank researcher wrote in a commentary posted late on Wednesday.

[SHANGHAI] China could in theory raise its budget deficit to more than 4 per cent of gross domestic product to help support growth, a senior central bank researcher wrote in a commentary posted late on Wednesday.

China has been expected to run a larger budget deficit this year as leaders turn to government spending to arrest the slowdown in the economy after disappointing returns from a year of monetary policy easing.

"In the near future, it's possible to raise China's fiscal deficit rate to 4 per cent, or even higher," Sheng Songcheng, director of the Survey and Statistics Department at the People's Bank of China (PBOC) wrote on "The Economic Daily" website.

Beijing is widely expected to increase its budget deficit to more than 3 per cent of gross domestic product in 2016 from a target of 2.3 per cent last year to help cushion the economy against the potential impact from structural reforms.

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China's economic growth slipped last year to 6.9 per cent, stellar by Western standards, but the weakest pace for China in more than two decades.

Sheng added that China's economy and level of outstanding debt meant the deficit should not be constrained by international recommendations, such as those in the Maastricht Treaty which led to the adoption of the euro currency, which warned against a deficit of more than 3 per cent of GDP.

"Some people argue that if government debt or deficit is above this level then it is dangerous," he wrote. "(However), the Maastricht warning level is not suitable for China's actual situation."

China is hosting the meeting of G20 finance ministers and central bank governors in Shanghai starting on Friday, and officials have announced various measures to support the economy and struggling industries.

REUTERS

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