IMF gloomy over public finances; Britain’s public finances will be in far worse shape than those of most other developed countries over the next two years
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IMF gloomy over public finances
By Norma Cohen
Published: March 19 2009 10:28 | Last updated: March 19 2009 10:28
Britain’s public finances will be in far worse shape than those of most other developed countries over the next two years, according to a new forecast released on Thursday by the International Monetary Fund.
By 2010, Britain’s deficit will be much bigger relative to the size of its economy than even the US, and nearly twice as big as the average among G20 nations. The IMF calculates that borrowings will balloon to 11 per cent of gross domestic product by 2010 while those of the US will rise to 8.9 per cent. The G20 average, weighted for the size of its respective economies, will be 6.3 per cent.
Meanwhile new data from the Office for National Statistics, released on Thursday, gave credence to that forecast, revealing the toll that falling profits and rising job losses jare taking on public sector finances. The data prompted private sector economists to revise upwards the size of the required government borrowing for 2008-09 to about £95bn.
Gemma Tetlow, senior research economist at the Institute for Fiscal Studies, noted that this was £17bn more than had been projected as recently as last November in the government’s pre-Budget report. “As a share of national income, this would be the highest level of public sector net borrowing for 15 years,” she said.
Total receipts in February were £40.7bn, down from £45.1bn in the same month in 2008, according to the ONS, while for the financial year to the end of February, receipts were £14.3bn below their level at the same time last year. The biggest declines in government revenue came from smaller value added tax and income tax receipts.
Expenditure in February was £26.7bn higher than in the previous financial year. Net social benefits, which include payments to the unemployed, were £1bn higher at £12.1bn.
Responding to the latest IMF forecasts George Osborne, shadow chancellor, said: “These dreadful figures show how the Labour government has given us the worst public finances in the developed world. When Gordon Brown sits down at the London summit next month, he will find himself as the person forecast to have both the worst budget deficit and the longest recession in the G20.”
The public sector current budget was in deficit by £1.8bn in February compared with a surplus of £4.6bn in 2008. In the financial year to date, the public sector current budget deficit totalled £43.8bn, sharply higher than the deficit of £2.1bn recorded a year ago. Public sector net debt at the end of February was £717.3bn, equal to 49 per cent of GDP, but if financial sector intervention is stripped out, the figure falls to £594.1bn or 40.7 per cent of GDP.
Colin Ellis, economist at Daiwa Securities SMBC, noted that the government’s own pre-Budget report forecasts “have been progressively exposed as being too optimistic” and said that the actual deficit for 2008-09 could turn out to be as large as £90bn.
The government is widely expected to revise both its economic and financial outlook when it releases its budget on April 22.
Thursday’s data include some reclassifications related to government intervention in the financial sector. The main change in February was a reclassification of government claims on the Icelandic banks after the payment of compensation to UK depositors. These claims, totalling around £7bn, have inflated the public sector net cash requirement and net debt by a similar amount.
Copyright The Financial Times Limited 2009