Significant Issues and Future Outlook

WATC must remain flexible and adaptable to respond to the ever‑changing economic environment to deliver the financial requirements of the State and our clients.

Western Australia’s Economic Environment

Western Australian real gross state product expanded an estimated 2.5% in 2017/18, according to Department of Treasury budget estimates, with rising exports the major driver of growth. Western Australia remains an export powerhouse and was the source of over 40% of the value of Australia’s merchandise goods exports in 2017/18.

Real gross state product growth is forecast to accelerate to 3.25% in 2018/19, with further increases in export volumes again expected to play a leading role. Rising household consumption and recovering dwelling investment are also expected to make positive contributions to growth in 2018/19.

Budget for 2018/19

	$’000
Income
Interest on Investments	61,250
Interest from Authorities	1,640,287
Fee Income	1,764
	1,703,301

Expenses
Interest on Borrowings	1,646,204
Depreciation/Amortisation	824
Borrowing Related Expenses	4,413
Administration Expenses	17,787
	1,669,228

Profit before Income Tax Equivalent	34,073
Income Tax Equivalent Expense	10,222
Profit for the Period	23,851

Estimated Borrowing Program for 2018/19

The sourcing of WATC’s funding is subject to conditions in the various markets and the market mix during the year may be amended as necessary to meet WATC’s pricing, liquidity, lending and capital usage targets.

	$b	$b
Term Funding Requirement
New Lending to Clients		2.7
Projected Maturities
Bonds	4.3
FRNs	1.0	5.3
Total Term Funding Requirement		8.0

Borrowing Strategy for 2018/19

In order to meet the State’s funding and debt management requirements for 2018/19, WATC plans to:

issue a new benchmark bond line with a maturity in the 10-12 year sector

issue a new 5-year maturity floating rate note and continue to issue floating rate notes into outstanding lines in response to investor demand and to accommodate the term floating rate borrowing requirements of clients.

In addition, WATC will continue to:

issue across the yield curve to fund lending to clients

enhance the liquidity in existing lines of benchmark bonds by:

maintaining sufficient volumes on issue to retain benchmark bond status
supporting these securities in the market
issuing through our Fixed Interest Market Making Panel, by tender, private placement or syndication

maintain approximately $2.0 billion to $3.0 billion of short-term paper on issue through domestic Short-Term Inscribed Stock and the offshore Euro Commercial Paper Program to meet short-term lending and liquidity funding requirements

ensure that debt issuance undertaken through domestic and offshore borrowing programs is issued in a manner satisfying the requirements for exemption from interest withholding tax under Section 128F of the Income Tax Assessment Act 1936.

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Annual Report 2018