Although news of the government’s bond issue had been met with some disparaging remarks in some quarters, it proved a resounding success. The government raised €1.75 billion through the issue of a seven-year and a 30-year euro-denominated bonds, that were both over-subscribed.
It raised €1.25 billion through the seven-year bond and €500 million on the 30-year bond. The yield for the former was hovering around 1.55 per cent and for the latter at 2.33 per cent Finance Minister Constantinos Petrides said, noting that total demand reached €2.6 billion.
This indicated that “in this difficult international period for the economy, marked by great uncertainty because of the economic consequences of the pandemic, the Cyprus economy still commands the confidence of the international markets,” Petrides said.
The timing for the issue was also right. Last week Fitch rating agency ranked Cyprus’ long-term credit rating as BBB-, changing the outlook from positive to stable, which was welcome news in the current conditions. Fitch had forecast a contraction of GDP of more than 2 per cent this year but made the assumption the coronavirus could be contained in the second half of the year.
The other factor making the timing right was the ECB’s very low interest rates that make such issues an attractive proposition to investors, at least for now. Conditions could change very fast in international markets which was why it was important for the government to act fast and take advantage of the current situation to improve liquidity at a time of falling revenue.
Prudent economic policies followed in the last few years have enabled the government to go to the markets successfully in these conditions, even though we hope there will be no need to do so again in the near future, because putting the public debt on a continuous upward path would have negative consequences for the economy.
The finance ministry’s Public Debt Management Office on Tuesday said GDP could contract between 5 and 10 per cent and estimated the state’s financing needs this year at €3.25 billion. This is just an estimate as nobody knows what course the current situation will take, how long the lockdown will last, when the airports will open or how soon normal economic activity would resume.
No accurate forecasts can be made in the current situation but we can only hope the return to normality will not take too long because in a few months it might not be as easy to go to the markets for additional financing needs.