Cyprus Mail

Government to issue a €0.5bn international bond this year

The government estimates its total financing needs for the year at €1.2bn, which it will cover mainly with a €0.5bn international bond issue, the finance ministry said.

In addition, the government plans to issue €300m in domestic bonds, roll over €300m in treasury bills and tap €100m from other sources, which include the sale of retail bonds to individual investors and loans from the European Investment Bank (EIB), the finance ministry said in its stability programme which it submitted recently to the European Commission.

The government, which in the current stability programme revised its fiscal balance target for this year to a surplus of 0.2 per cent of economic output from a 0.6 per cent fiscal shortfall in October, will need to finance maturing bonds worth around €400m on top of the €300m in treasury bills it plans to have rolled over, the document which is posted on the ministry’s website said. In addition, the government wants to accumulate €400m in funds.

The creation of an additional cash buffer to the existing one, estimated at roughly €2bn held by the general government at the Central Bank of Cyprus and commercial banks, would push general government debt to €19.7bn from €19.3bn last year, according to the stability programme. Still the government projected that public debt would rise to €19.4bn and drop as a result of a combination of growth and inflation to 104 per cent of economic output from 107.8 per cent last year.

The finance ministry was immediately not available for comment.

While the issue of additional debt would increase public debt, the drop in secondary market yields of government securities may help the government borrow at the lowest ever cost abroad.

According to a Bank of Cyprus document, the yield of Cyprus’s government bond maturing in 2025 fell today morning to 3.11 per cent which is 114 basis points below the average yield on the day it was auctioned. In addition, the premium demanded by holders of this Cypriot security compared to holding a 10-year German bond, fell to around 280 basis points, which is roughly 40 basis points below what it was in January.

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