Fiscal deficit to stay elevated in 2013: Moody's

Median fiscal balance for region likely to improve to -2.6% of GDP from 2.8% in 2012

India and its two neighbours – Pakistan and Sri Lanka - are expected to standout with higher fiscal deficit levels in 2013 while most Asia-Pacific countries will show improvement in their fiscal profile, according to Moody’s.

Moody’s said with ongoing fiscal consolidation efforts the median fiscal balance for region is likely to improve to -2.6% of GDP from 2.8% in 2012.

The ratio had shot up to 3.9% of GDP for the region in 2009 at the height of the global financial crisis.

The country’s including India, Pakistan, Sri Lanka along with Japan are all expected to maintain fiscal deficits around double the region’s median. Also, their general government debt levels may stay in excess of 60% of GDP, Moody’s said.

Moody’s said in the case of India, fiscal improvement will depend on the extent to which GDP growth revives and yields higher tax revenues. But, a stable investor base consisting of domestic financial institutions and restrictions on capital investment abroad ensure availability of domestic funding for government debt, it said.

Rating for India’s government bonds is Baa3. The outlook is negative.

For Asia-Pacific, the improvement in fiscal deficit levels and robust nominal GDP growth will help maintain the downward trajectory of general government debt. It is expected to decline from a median of 42.7% of GDP in 2011 to 40% by end-2013, Moody’s said.