Funding tasks dial back down
Perhaps the most notable feature of the early days of the pandemic for Australian government-sector issuers was spiralling funding requirements as revenue projections collapsed and governments stood up to support furloughed economies. The extreme spike has passed, but many issuers are still facing structurally higher borrowing tasks.
WHEADON After the budget in May we announced a 2021/22 funding programme comprising A$130 billion (US$98.9 billion) in Treasury bonds, A$2-2.5 billion in inflation-linked bonds by tender, the possibility of a new, syndicated, 10-year, inflation-linked bond and regular issuance of Treasury notes.
The risks look a bit more skewed toward a lower task. I don’t think this is particularly surprising given the strength of the economic rebound we have seen with employment growth, consumer spending and commodity prices all pointing toward a smaller deficit than forecast, at least for 2020/21.
We got a taste of this when the Department of Finance published its May 2021 financial statement a few days ago showing that the combination of better tax receipts and lower outlays has the 2020/21 fiscal balance tracking about A$16 billion ahead of the budget profile for the 11 months to the end of May 2021.
Given how close this is to the end of the fiscal year, I think it is likely some of it will carry through to the final budget outcome. While we cannot form a view as to whether this budget strength will persist into the new fiscal year, I think our starting point for the funding task in 2021/22 could well be materially lower by virtue of a better outcome this fiscal year.
As for the near-term issuance outlook, I think there is a good chance we will soft pedal on weekly issuance through the first few months of 2021/22. I say this with a hint of trepidation, of course, given that we have much of Australia in lockdown at the moment. This is a good reminder that COVID-19-related tail risks are still with us.
FAJARDO We had our budget on 15 June and released the borrowing programme the same afternoon, at A$17.4 billion. This is a reduction of just more than A$5 billion from the forecast at the time of our 2020/21 borrowing programme, which was released in December following the delayed state budget.
Our borrowing requirements in the out years are expected at this point to average around A$17.4 billion with the largest programme in 2022/23, at A$19.8 billion. Based on this, we do not see a material change to how we have been operating since progressing to larger borrowing programmes as a result of COVID-19.
KENNA We also recently released our 2021/22 borrowing programme, which followed the New South Wales budget as usual, comprising a task of A$35.5 billion across new loans of A$31.1 billion and maturities of A$4.4 billion.
Over the four-year period, we are forecasting A$90 billion of new client lending, which progressively declines from A$31 billion in the next year to A$17.9 billion in financial year 2025 – the last year in the forecast.
Speaking of forecasting, it can be pretty challenging in the midst of a pandemic. Extended meaningful shifts can occur in the expense and revenue lines, and also in the timing of capital expenditures.
The initial forecast for financial year 2021 had a funding programme of A$35.5 billion. We were able to revise this down to A$29.5 billion at the February update. Total term-funding issuance for the year ended up at about A$24 billion because other factors also moved around, including liquidity and the size of the book.
KELLY The strength of the recovery has also had a positive impact on Victoria’s borrowing programme. If we look back to when we released our budget in November, at the height of the pandemic, we identified a A$45 billion funding task for the 2020/21 financial year. We printed around A$39 billion in total and a good portion of this will roll into next year.
The 2021/22 funding task we released a month ago was in the vicinity of A$29.2 billion – with a remaining task of just less than A$18 billion. The A$11 billion of pre-funding we are carrying into 2021/22 reflects the fact that revenue has not fallen as aggressively as originally budgeted and expenditure also not hitting targets.
Our estimates for the next two years of funding are A$25.8 billion and A$29.1 billion.
KENNEDY South Australian Government Financing Authority (SAFA) estimates it has a gross term-funding requirement of approximately A$5.2 billion for 2021/22. This comprises about A$4.2 billion in new client money and refinancing for future maturities at A$1.8 billion. In addition, SAFA starts the new financial year with roughly A$800 million pre-funded due to an improved 2021 final budget outcome.
Based on the forward estimates – and, as with the other states, these come with a very large asterisk on them – SAFA anticipates its gross term-funding requirements for 2022/23 to be A$6.75 billion followed by another A$6.25 billion in 2023/24 and a further A$5 billion in 2024/25.
This takes SAFA’s total debt on issue to A$35.8 billion from roughly A$23.8 billion over the forward estimates.
It’s important to look at these numbers in context. When the 2021 budget was released, late last year, SAFA estimated its 2021/22 borrowing programme would be A$7.5 billion, rather than the A$5.2 billion now forecast.
These things are subject to change and certainly the revenue side of the budget, specifically goods and services tax, has been a lot stronger and held up better than expectations.
GULICH Our borrowing requirement for the new year is expected to be considerably lower than we forecast at our last budget update. The state will not be releasing its budget until 9 September, which is later than usual due to the election we had during the first quarter of 2021.
Our new funding programme is evolving through the budget process. We believe there will be downside to the current new funding estimate of A$2.6 billion. This reflects a similar trend to what we have seen in other jurisdictions. Revenue is higher than previously anticipated and some of the state government’s expenditure, particularly around the asset-investment programme, is a little bit slower – resulting in deferring some of the need to borrow.
On the refinancing side, we have A$5.9 billion maturing during the course of 2021/22. We have pre-funded A$3.7 billion of this, which is the July maturity given its proximity to where we stand today.
At the moment we are looking at a small programme of about A$2.2 billion next year. We will have more guidance in September. Over the forward estimates we are already anticipating a very subdued new funding programme for the state compared with previous years. We will be focusing largely on our maturity profile.