There has been a lot of speculation about the government deficit, and about potential downgrades. Can you clarify your position on this issue?
Moody's and the other agencies have downgraded the outlook from stable to negative as a wake up call to us. They are saying you cannot forever be in a borrowing situation, as at a certain point your debt will be unsustainable, and I agree with that.
That's why in the president's speech the other day, and in the legislative agenda a couple of days ago she asked for eight priority legislative measures to be passed. Many of them are revenue-related.
The economic managers - the department of finance, the department of trade, the economic planning board - they all realize that we can't go onwards on a defecit basis - it is a downward trajectory. We need to get to a zero budget defecit in, say, year six or seven. It doesn't have to happen tomorrow - we still have time - but we can't be running deficits of 4.5% of GDP each year.
Last year we overshot our budget horrendously and ended up with a deficit of 5.7%. This year the target is 4.7%.
The last two months of last year showed some improvements in the revenue collections. These were due to administrative efficiencies, but what everyone is saying, including the technocrats in government, is that the administrative measures are good enough for now, but they are not going to solve our problems, so therefore we need additional taxes and clearer definitions, for example, of what is VAT-related and what is not.
If there is one Achilles heel we have, it is very much the budget deficit. It needs to be addressed, or else we are in trouble somewhere down the road.
Estimates of your international borrowing in 2003 – for the Republic and Napocor – run at $4 billion. Can the government raise that type of money without substantially widening its spreads?
The majority of the Napocor borrowings will carry a Nexi or World Bank guarantee. From what I understand, the Napocor amount is not that large. Napocor come up with a $2 billion estimate, but that includes a lot of nice-to-have rather than must-have money, and the government is saying to them, okay, you must have $1 billion more.
The national government has raised $900 million of the $2 billion and so they have another $1 billion to raise. So this year, I don't think we have a problem – and probably not even next year.
If you look at the debt profile of the country, the average tenor is 16 years. The problem is not immediate, but medium term. The residual maturity falling due each year is about 10%.
External credit analysts say the government is always going to face problems while Napocor's debt is on its balance sheet. When do you foresee Napocor being fully privatized and taken off the government's balance sheet?
That's on the top of the President's agenda. There is a need to complete the transmission company and the privatization of the Napocor's power generation. I quite agree that next to the budget deficit, the power sector is the biggest concern.
Actually, if we can take care of the power sector, that almost takes care of the budget deficit.
I had heard that the power price cut announced last Spring, led to Napocor's borrowing requirement rising by $700 million.
That is correct. And that's why in many respects, curing the power sector almost cures the budget deficit. But not quite - there is still a lot of work to do.
Clearly, if they address the problems with the power sector that will provide a lot of relief to the department of finance.
Can these power sector reforms and privatization be achieved by 2005?
I think they better be achieved by then. They are a top priority.
