WASHINGTON, July 13 (Reuters) – The U.S. government posted a $228 billion budget deficit for June, up 156% from a year earlier as revenues continued to weaken and July benefit payments were accelerated into June, the U.S. Treasury Department said on Thursday.
The deficit compares to a June 2022 budget gap of $89 billion. June receipts fell $42 billion, or 9% from a year ago, to $418 billion, while June outlays rose $96 billion, or 18%, to $646 billion.
But some $86 billion worth of July benefit payments were made in June because July 1 fell on a weekend, and without these and other calendar adjustments, the June deficit would have been $142 billion — a 66% increase over June 2022.
For the first nine months of the 2023 fiscal year, which ends Sept. 30, receipts fell $423 billion, or 11%, from the year-ago period to $3.413 trillion. The decline was primarily driven by lower non-withheld individual income taxes due to lower capital gains in 2022 and lower year-end salary bonuses, as well as sharply higher individual tax refunds as the Internal Revenue Service cleared a backlog of unprocessed receipts.
The Federal Reserve has earned $93 billion less this year because it is paying higher interest on bank reserves and no longer has positive net income – a situation that a Treasury official said was expected to continue.
Year-to-date outlays rose $455 billion, or 10% from a year earlier to $4.805 trillion. Higher outlays for Social Security this year have been driven by cost-of-living adjustments, while the interest on the public debt so far this year has risen $131 billion, or 25%, to $652 billion due to higher interest rates.
Also driving up outlays were $52 billion in Federal Deposit Insurance Corp costs to resolve failing banks, a Treasury official said.
Reporting by David Lawder; Editing by Andrea Ricci
Hit finance ministry, president’s office, spy agency and others
Sources believe Beijing was seeking info on debt
NAIROBI, May 24 (Reuters) – Chinese hackers targeted Kenya’s government in a widespread, years-long series of digital intrusions against key ministries and state institutions, according to three sources, cybersecurity research reports and Reuters’ own analysis of technical data related to the hackings.
Two of the sources assessed the hacks to be aimed, at least in part, at gaining information on debt owed to Beijing by the East African nation: Kenya is a strategic link in the Belt and Road Initiative – President Xi Jinping’s plan for a global infrastructure network.
“Further compromises may occur as the requirement for understanding upcoming repayment strategies becomes needed,” a July 2021 research report written by a defence contractor for private clients stated.
China’s foreign ministry said it was “not aware” of any such hacking, while China’s embassy in Britain called the accusations “baseless”, adding that Beijing opposes and combats “cyberattacks and theft in all their forms.”
China’s influence in Africa has grown rapidly over the past two decades. But, like several African nations, Kenya’s finances are being strained by the growing cost of servicing external debt – much of it owed to China.
The hacking campaign demonstrates China’s willingness to leverage its espionage capabilities to monitor and protect economic and strategic interests abroad, two of the sources said.
The hacks constitute a three-year campaign that targeted eight of Kenya’s ministries and government departments, including the presidential office, according to an intelligence analyst in the region. The analyst also shared with Reuters research documents that included the timeline of attacks, the targets, and provided some technical data relating to the compromise of a server used exclusively by Kenya’s main spy agency.
A Kenyan cybersecurity expert described similar hacking activity against the foreign and finance ministries. All three of the sources asked not to be named due to the sensitive nature of their work.
“Your allegation of hacking attempts by Chinese Government entities is not unique,” Kenya’s presidential office said, adding the government had been targeted by “frequent infiltration attempts” from Chinese, American and European hackers.
“As far as we are concerned, none of the attempts were successful,” it said.
It did not provide further details nor respond to follow-up questions.
A spokesperson for the Chinese embassy in Britain said China is against “irresponsible moves that use topics like cybersecurity to sow discord in the relations between China and other developing countries”.
“China attaches great importance to Africa’s debt issue and works intensively to help Africa cope with it,” the spokesperson added.
THE HACKS
Between 2000 and 2020, China committed nearly $160 billion in loans to African countries, according to a comprehensive database on Chinese lending hosted by Boston University, much of it for large-scale infrastructure projects.
Kenya used over $9 billion in Chinese loans to fund an aggressive push to build or upgrade railways, ports and highways.
Beijing became the country’s largest bilateral creditor and gained a firm foothold in the most important East African consumer market and a vital logistical hub on Africa’s Indian Ocean coast.
By late 2019, however, when the Kenyan cybersecurity expert told Reuters he was brought in by Kenyan authorities to assess a hack of a government-wide network, Chinese lending was drying up. And Kenya’s financial strains were showing.
The breach reviewed by the Kenyan cybersecurity expert and attributed to China began with a “spearphishing” attack at the end of that same year, when a Kenyan government employee unknowingly downloaded an infected document, allowing hackers to infiltrate the network and access other agencies.
“A lot of documents from the ministry of foreign affairs were stolen and from the finance department as well. The attacks appeared focused on the debt situation,” the Kenyan cybersecurity expert said.
Another source – the intelligence analyst working in the region – said Chinese hackers carried out a far-reaching campaign against Kenya that began in late 2019 and continued until at least 2022.
According to documents provided by the analyst, Chinese cyber spies subjected the office of Kenya’s president, its defence, information, health, land and interior ministries, its counter-terrorism centre and other institutions to persistent and prolonged hacking activity.
The affected government departments did not respond to requests for comment, declined to be interviewed or were unreachable.
By 2021, global economic fallout from the COVID-19 pandemic had already helped push one major Chinese borrower – Zambia – to default on its external debt. Kenya managed to secure a temporary debt repayment moratorium from China.
In early July 2021, the cybersecurity research reports shared by the intelligence analyst in the region detailed how the hackers secretly accessed an email server used by Kenya’s National Intelligence Service (NIS).
Reuters was able to confirm that the victim’s IP address belonged to the NIS. The incident was also covered in a report from the private defence contractor reviewed by Reuters.
Reuters could not determine what information was taken during the hacks or conclusively establish the motive for the attacks. But the defence contractor’s report said the NIS breach was possibly aimed at gleaning information on how Kenya planned to manage its debt payments.
“Kenya is currently feeling the pressure of these debt burdens…as many of the projects financed by Chinese loans are not generating enough income to pay for themselves yet,” the report stated.
A Reuters review of internet logs delineating the Chinese digital espionage activity showed that a server controlled by the Chinese hackers also accessed a shared Kenyan government webmail service more recently from December 2022 until February this year.
Chinese officials declined to comment on this recent breach, and the Kenyan authorities did not respond to a question about it.
‘BACKDOOR DIPLOMACY’
The defence contractor, pointing to identical tools and techniques used in other hacking campaigns, identified a Chinese state-linked hacking team as having carried out the attack on Kenya’s intelligence agency.
The group is known as “BackdoorDiplomacy” in the cybersecurity research community, because of its record of trying to further the objectives of Chinese diplomatic strategy.
According to Slovakia-based cybersecurity firm ESET, BackdoorDiplomacy re-uses malicious software against its victims to gain access to their networks, making it possible to track their activities.
Provided by Reuters with the IP address of the NIS hackers, Palo Alto Networks, a U.S. cybersecurity firm that tracks BackdoorDiplomacy’s activities, confirmed that it belongs to the group, adding that its prior analysis shows the group is sponsored by the Chinese state.
Cybersecurity researchers have documented BackdoorDiplomacy hacks targeting governments and institutions in a number of countries in Asia and Europe.
Incursions into the Middle East and Africa appear less common, making the focus and scale of its hacking activities in Kenya particularly noteworthy, the defence contractor’s report said.
“This angle is clearly a priority for the group.”
China’s embassy in Britain rejected any involvement in the Kenya hackings, and did not directly address questions about the government’s relationship with BackdoorDiplomacy.
“China is a main victim of cyber theft and attacks and a staunch defender of cybersecurity,” a spokesperson said.
Reporting by Aaron Ross in Nairobi, James Pearson in London and Christopher Bing in Washington
Additional reporting by Eduardo Baptista in Beijing
Editing by Chris Sanders and Joe Bavier
West & Central Africa correspondent investigating human rights abuses, conflict and corruption as well as regional commodities production, epidemic diseases and the environment, previously based in Kinshasa, Abidjan and Cairo.
Reports on hacks, leaks and digital espionage in Europe. Ten years at Reuters with previous postings in Hanoi as Bureau Chief and Seoul as Korea Correspondent. Author of ‘North Korea Confidential’, a book about daily life in North Korea. Contact: 447927347451
Award-winning reporter covering the intersection between technology and national security with a focus on how the evolving cybersecurity landscape affects government and business.
WASHINGTON, May 13 (Reuters) – President Joe Biden said on Saturday that talks with Congress on raising the U.S. government’s debt limit were moving along and more will be known about their progress in the next two days.
“I think they are moving along, hard to tell. We have not reached the crunch point yet,” Biden told reporters at Joint Base Andrews.
“We’ll know more in the next two days,” he said.
Biden is expected to meet with Republican House Speaker Kevin McCarthy and other congressional leaders early next week to resume negotiations.
The leaders had canceled a planned meeting on Friday to let staff continue discussions.
Aides for Biden and McCarthy have started to discuss ways to limit federal spending as talks on raising the government’s $31.4 trillion debt ceiling to avoid a catastrophic default creep forward, Reuters has reported.
The Treasury Department says it could run out of money by June 1 unless lawmakers lift the nation’s debt ceiling.
Reporting by Jeff Mason; Writing by Eric Beech; Editing by David Gregorio
LONDON, April 13 (Reuters) – The latest bid by the world’s leading institutions and creditors to speed up debt restructurings and get bankrupt countries back on their feet has been greeted by a mix of cautious optimism and weary scepticism by veteran crisis watchers.
Standoffs between major Western-backed lenders like the International Monetary Fund (IMF) and the world’s top bilateral creditor, China, have been blamed for keeping countries such as Zambia mired in default for nearly three years.
The somewhat loose framework around sovereign restructurings has seen Beijing seek to influence the traditional rules of engagement in these processes.
The renewed push to overcome the logjams came after a “roundtable” at the IMF Spring Meetings and included pledges from the Fund and World Bank to share assessments of countries’ troubles more quickly, provide more low-interest and grant funding and stricter timeframes on restructurings overall.
The idea is that Beijing would then drop its insistence that the multilateral lenders take losses, or “haircuts”, on the loans they have provided or underwritten in crisis-hit countries.
Beijing has not commented directly on the demand for multilateral lender haircuts, but in remarks published on Friday People’s Bank of China Governor Yi Gang reiterated China’s willingness to implement debt talks under the Common Framework, the platform introduced by leading G20 nations in 2020 to streamline talks with all creditors.
“If the multilateral development banks are now making real commitments to provide fresh grants to distressed countries this is a breakthrough,” said Kevin Gallagher, director of the Boston University Global Development Policy Center.
But he added that as the new plans lacked specific mention of China’s intentions it suggested the “lack of a strong and clear consensus” in Washington.
The IMF’s managing director Kristalina Georgieva has stressed that with around 15% of low income countries already in debt distress and dozens more in danger of falling into it, far more urgency is needed.
Besides members of the Paris Club of creditor nations such as the United States, France and Japan, cash-strapped nations now have to rework loans with lenders such as India, Saudi Arabia, South Africa and Kuwait – but first and foremost China.
Beijing is now the largest bilateral creditor to developing nations, extending $138 billion in new loans between 2010 and 2021, according to World Bank data, and some estimates put total lending at almost $850 billion.
Reuters Graphics
HEADWINDS
Global headwinds are about to get stronger too.
Financially weaker countries with “junk”-grade sovereign credit ratings need to repay or refinance $30 billion worth of government bonds next year between them, compared to just $8.4 billion for the remainder of this one.
The rise in global borrowing costs, though, means that many countries under the greatest stress are now unable to borrow in the international capital markets or, if they can, only at unsustainably high interest rates.
The Chinese debt, meanwhile, is often opaque and muddied by arguments about whether the loans have been given by “official” entities – i.e by the government – or by “private” entities.
Authorities in Beijing also prefer to roll over debt payments rather than write them off, and given it is an increasingly dominant creditor, it has little incentive to follow co-operative Paris Club-like principles.
“It would be great to have China on board (with the push to speed up restructurings) but I don’t really have high hopes because there is a lot of geopolitics involved,” said Viktor Szabo, an emerging market debt manager at Abrdn in London.
Select IMF loans to low and middle income countries by date of Board approval
COMMON PROBLEMS
Recent research by Boston University estimated that up to $520 billion in debt needs to be written off to help developing nations at greatest risk of default return to a sounder fiscal footing.
But lengthy delays in Zambia, and more recently in Sri Lanka, have elicited widespread criticism of the Common Framework.
Wednesday’s promises by the IMF to provide its assessments more quickly was an admission that the Common Framework was currently failing, Szabo added.
“You have to make it functional. The fact that it’s been in place for three years and there is nothing to really show for it, that is really appalling.”
Anna Ashton, director of China research at Eurasia Group, said this week’s developments underscored the benefits for China to give some ground on some of its concerns.
“Being willing to compromise and facilitate debt restructuring right now is likely crucial to China’s continued credibility with the developing world writ large,” Ashton said.
Patrick Curran, senior economist with Tellimer, added that China dropping demands for the big multilateral development banks (MDBs) to swallow losses on their loans could also be “a major breakthrough”.
“There is likely to be broad support for the alternative proposal that MDBs mobilize their resources more aggressively, especially at a time when most low-income countries are locked out of the market,” Curran said.
Germany’s finance minister Christian Lindner on Thursday too said all the talk now needed to be converted into action.
The group that took part in Wednesday’s roundtable plans to meet again in coming weeks to address remaining issues, including how various creditors are treated, principles for cut-off dates and suspending debt payments.
Ultimately, whether the new terms help Zambia, and countries like Sri Lanka, Ghana and Ethiopia that are also in the midst of bailout talks, finalise deals will be the only proof of whether the new terms work.
“China is a difficult partner to talk to but we need China at the table for the solution of debt problems, because otherwise we won’t see any progress,” Lindner said.
Reuters Graphics
Additional reporting by Rodrigo Campos in New York and Joe Cash in Beijing
Editing by Mark Potter
Nov 4 (Reuters) – U.S. Supreme Court Justice Amy Coney Barrett on Friday again declined to block President Joe Biden’s plan to cancel billions of dollars in student debt, this time in a challenge brought by two Indiana borrowers, even as a lower court considers whether to lift a freeze it imposed on the program in a different case.
Barrett denied an emergency request by the Indiana borrowers, represented by a conservative legal group, to bar the U.S. Department of Education from implementing the Democratic president’s plan to forgive debt held by qualified people who had taken loans to pay for college.
Barrett on Oct. 20 denied a similar request by a Wisconsin taxpayers organization represented by another conservative legal group. The justice acted in the cases because she is the justice assigned to handle certain emergency requests from a group of states that includes Indiana and Wisconsin.
The St. Louis-based 8th U.S. Circuit Court of Appeals on Oct. 21 put the policy on hold in yet another conservative challenge by six Republican-led states while it considered their request for injunction pending their appeal of their case’s dismissal. That request remains pending.
Biden’s plan, unveiled in August, was designed to forgive up to $10,000 in student loan debt for borrowers making less than $125,000 per year, or $250,000 for married couples. Borrowers who received Pell Grants to benefit lower-income college students would have up to $20,000 of their debt canceled.
The non-partisan Congressional Budget Office in September calculated that debt forgiveness would eliminate about $430 billion of the $1.6 trillion in outstanding student debt and that more than 40 million Americans would be eligible to benefit.
The policy fulfilled a promise Biden made during the 2020 presidential campaign to help debt-saddled former college students. Democrats hope the policy will boost support for them in Tuesday’s midterm elections in which control of Congress is at stake.
Friday’s case was filed by two borrowers, Frank Garrison and Noel Johnson, represented by the conservative Pacific Legal Foundation, and claimed they would be irreparably harmed if some of their student loans were automatically forgiven because they would face increased state tax liabilities.
Soon after they sued, the Department of Education created an opt-out option for borrowers. U.S. District Judge Richard Young on Oct. 21 dismissed the case, finding that the debt forgiveness program did not injure Garrison and Johnson.
The Chicago-based 7th U.S. Circuit Court of Appeals on Oct. 28 declined to block the plan while Garrison and Johnson pursued an appeal, noting that the program is “not compulsory” and that the plaintiffs could avoid tax liability simply by opting out.
Caleb Kruckenberg, a lawyer at the Pacific Legal Foundation, in a statement expressed disappointment that Barrett declined to block the plan while his clients pursued their appeal but said they will “continue to fight this program in court.”
“Practically since this program was announced, the administration has sought to avoid judicial scrutiny,” he said. “Thus far they have succeeded. But that does not change the fact that this program is illegal from stem to stern.”
Reporting by Nate Raymond in Boston; editing by Jonathan Oatis and Rosalba O’Brien
BoE’s Bailey says agrees with Hunt on need to fix finances
Some Conservative lawmakers say Truss will be ousted
LONDON, Oct 15 (Reuters) – Britain’s new finance minister Jeremy Hunt said on Saturday some taxes would go up and tough spending decisions were needed, saying Prime Minister Liz Truss had made mistakes as she battles to keep her job just over a month into her term.
In an attempt to appease financial markets that have been in turmoil for three weeks, Truss fired Kwasi Kwarteng as her chancellor of the exchequer on Friday and scrapped parts of their controversial economic package.
With opinion poll ratings dire for both the ruling Conservative Party and the prime minister personally, and many of her own lawmakers asking, not if, but how Truss should be removed, Truss is relying on Hunt to help salvage her premiership less than 40 days after taking office.
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In an article for the Sun newspaper published late on Saturday, Truss admitted the plans had gone “further and faster than the markets were expecting”.
“I’ve listened, I get it,” she wrote. “We cannot pave the way to a low-tax, high-growth economy without maintaining the confidence of the markets in our commitment to sound money.”
She said Hunt would lay out at the end of the month the plan to get national debt down “over the medium term”.
But, the speculation about her future shows no sign of diminishing, with Sunday’s newspapers rife with stories that allies of Rishi Sunak, another former finance minister who she beat to become leader last month, were plotting to force her out within weeks.
On a tour of TV and radio studios, Hunt gave a blunt assessment of the situation the country faced, saying Truss and Kwarteng had made mistakes and further changes to her plans were possible.
“We will have some very difficult decisions ahead,” he said.”The thing that people want, the markets want, the country needs now, is stability.”
The Sunday Times said Hunt would rip up more of Truss’s original package by delaying a planned cut to the basic rate of income tax as part of a desperate bid to balance the books.
According to the newspaper, Britain’s independent fiscal watchdog had said in a draft forecast there could be a 72 billion pound ($80 billion) black hole in public finances by 2027/28, worse than economists had forecast.
Truss had won the leadership contest to replace Boris Johnson on a platform of big tax cuts to stimulate growth, which Kwarteng duly announced last month. But the absence of any details of how the cuts would be funded sent the markets into meltdown.
She has already ditched plans to cut tax for high earners, and said a levy on business would increase, abandoning her proposal to keep it at current levels. But a slump in bond prices after her news conference on Friday still suggested she had not gone far enough.
‘MEETING OF MINDS’
Kwarteng’s Sept. 23 fiscal statement prompted a backlash in financial markets that was so ferocious the Bank of England (BoE) had to intervene to prevent pension funds being caught up in the chaos as borrowing costs surged.
British Prime Minister Liz Truss attends a news conference in London, Britain, October 14, 2022. Daniel Leal/Pool via REUTERS
BoE Governor Andrew Bailey said he had spoken to Hunt and they had agreed on the need to repair the public finances.
“There was a very clear and immediate meeting of minds between us about the importance of fiscal sustainability and the importance of taking measures to do that,” Bailey said in Washington on Saturday. “Of course, there was an important measure taken yesterday.”
He also warned that inflation pressures might require a bigger interest rate rise than previously thought due to the government’s huge energy subsidies for homes and businesses, and its tax cut plans.
Hunt is due to announce the government’s medium-term budget plans on Oct. 31, in what will be a key test of its ability to show it can restore its economic policy credibility.
He cautioned spending would not rise by as much as people would like and all government departments were going to have to find more efficiencies than they were planning.
“Some taxes will not be cut as quickly as people want, and some taxes will go up. So it’s going to be difficult,” he said. He met Treasury officials on Saturday and will hold talks with Truss on Sunday to go through the plans.
‘MISTAKES MADE’
Hunt, an experienced minister and viewed by many in his party as a safe pair of hands, said he agreed with Truss’s fundamental strategy of kickstarting economic growth, but he added that their approach had not worked.
“There were some mistakes made in the last few weeks. That’s why I’m sitting here. It was a mistake to cut the top rate of tax at a period when we’re asking everyone to make sacrifices,” he said.
It was also a mistake, Hunt said, to “fly blind” and produce the tax plans without allowing the independent fiscal watchdog, the Office for Budget Responsibility, to check the figures.
The fact that Hunt is Britain’s fourth finance minister in four months is testament to a political crisis that has gripped Britain since Johnson was ousted following a series of scandals.
Hunt said Truss should be judged at an election and on her performance over the next 18 months – not the last 18 days.
However, she might not get that chance. During the leadership contest, Truss won support from less than a third of Conservative lawmakers and has appointed her backers since taking office – alienating those who supported her rivals.
The appointment of Hunt, who ran to be leader himself and then backed Sunak, has been seen as a sign of her reaching out, but the move did little to placate some of her party critics.
“It’s over for her,” one Conservative lawmaker told Reuters after Friday’s events.
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Reporting by Michael Holden, Alistair Smout and William Schomberg
Editing by Emelia Sithole-Matarise, Helen Popper, Ros Russell and Diane Craft
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