Budget Deficit Target for 2014: 2.8% of GDP; USD 1.5 bn in Sovereign Bonds; GDP Growth: 4.5%
In compliance with the Constitutional deadline, last week the Executive presented to Congress the budget bill for 2014. The proposed budget sets a deficit target equivalent to 2.8% of GDP, a level similar to that for 2013. Although no one was expecting a drastic reduction in primary spending given the slow pace of economic activity, the proposed deficit target is above the expectations of the majority of observers since total public debt is mounting to uncomfortable levels. Also tax revenues from the Barrick-Pueblo Viejo mining project will ease public finance stress in upcoming years. GDP growth estimate for 2014 is 4.5% (an overestimation, in our view), inflation target is set at 4.5% (+/- 1%) and average exchange rate was set at DOP 44.4 per USD (6.5% y/y depreciation rate). The government estimates a 15% increase in tax revenues for 2014 compared to 2013. It also proposes new credits for up to US$ 4.3 bn, of which US$ 3.5 bn are from foreign sources and US$ 762 bn are from domestic source (bonds). The government is expecting to issue US$ 1.5 bn in Sovereign Bonds in 2014 (43% of total foreign financing). It is also expecting to get US$ 1.5 bn in credit for budget support from multilateral sources, and US$ 470 mm in bilateral credits, mostly from Petrocaribe, the Venezuelan credit for oil program. Financial applications are estimated in US$ 2.5 bn. The deficit level set in the bill will increase public debt by US$ 3.5 bn in 2014, getting it to the vicinity of US$ 26 bn or 41.5% of GDP. The new budget is not different from the fiscal practice of the last 4-5 years. It maintains a relatively large deficit and it keeps public debt on the rise.