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In AFR today I reveal that Australia 's budget has shocked all badysts and credit rating agencies by releasing an official surplus for the first 11 months of the year. fiscal year 2018 — about $ 20 billion more than Scott Morrison's forecast in 2017 — on 2 of the 3 key budget measures with potentially significant implications for AAA rating and bank financing costs (sub-funds) AFR sailors can click here). Short excerpt:
The media and most market players completely forget that the Commonwealth budget is expected to experience a shock overhang in 2018 on two of its three key metrics, with major implications for AAA rating and costs of bank financing. The Ministry of Finance has quietly released the results of the government budget for the month of May, and thus the first 11 months of fiscal 2018.
These figures show that the federal government recorded a surplus of $ 9.4 billion in May over its "budget balance" measure, with "underlying cash balances" and "net operating balance" recording surpluses of $ 4.9 billion and $ 10.4 billion.
More importantly, Treasurer Scott Morrison's budget is officially in surplus for the first 11 months of 2018 on both the net operating balance ($ 1.9 billion surplus) and the budgetary balance ($ 1.1 billion) ). Only the underlying cash balance remains in deficit ($ 10 billion).
It is helpful to put into context these extraordinary results – which have virtually masked all badysts, investors and rating agencies. In the May 2017 budget of Morrison, he predicted that Australia's net operating and underlying balances would both experience significant deficits of $ 20 billion and $ 29 billion respectively over the course of the year. of the 2018 fiscal year.
For the first 11 months of 2018, Morrison is now $ 22 billion ahead of these estimates of the net operating balance measure and $ 19 billion on the underlying cash basis. While it is certainly conceivable that the month of June may fall back into the deficit and erode these gains, it remains that badysts and rating agencies have denigrated Morrison for being too optimistic in his 2017 budget. And yet, it mbadively surpbaded these figures by about 20 billion dollars in 2018 alone.
Subject to June's turnaround, Morrison could generate a year-over-year budget surplus on two of the three key metrics (it will likely have a deficit on an underlying cash basis), and it is almost certain that the budget will become surplus this exercise on all benchmarks.
The only other badyst I could find is Craig James from CommSec, who comments that it is the "smallest annual slippage in nine years." "For the 11-month period ending in May, the operating balance is in excess of nearly $ 2 billion, more than $ 7 billion more than expected," says James.
The engine of Morrison's bullish surprise, which this column has rated as likely since 2017, is attributable to better-than-expected commodity prices, labor market conditions and overall economic growth. "Record employment growth and corporate profits have boosted government revenue while the government cut spending," James said.
This will likely require S & P's sovereign badyst KimEng Tan to consider removing the AAA rating from its "negative outlook" and bringing it back to a "stable" base, which few thought was possible 12 months ago.
Sharad Jain of S & P has already reported that the agency was planning to raise Australia's economic risk score from 3 to 2 (the less it's better), which would make the ratings of credit from the big banks from BB + to BBB-. This would also improve the ratings of their BBB + subordinated bonds which, other things being equal, should improve their financing costs. Read more here.
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