Kc351.6 Billion Required in 2018 to Finance State Debt

Prague, Dec 22 (CTK) – The Finance Ministry will need Kc351.6bn to finance the state debt next year, the ministry said today referring to the published state debt financing and management strategy for 2018.

 

The ministry predicts a Kc290.9bn amount for this year in line with the updated version of the strategy of June.

 

The planned spending will be covered with government bond issues with maturity dates mostly exceeding five years. The ministry thus confirms its intention to extend the state debt maturity.

 

Mid-term and long-term government bond issues will reach a minimum of Kc150bn this year.

 

Komercni banka economist Marek Drimal said the ministry is going to sell Kc250bn worth of mid- and long-term bonds on the domestic market next year. “The net issue (adjusted for matured bonds) would thus reach Kc65bn, the highest amount since 2014,” said Drimal.

 

Thanks to the Czech National Bank’s (CNB) foreign exchange interventions, the ministry benefitted from a favourable situation in the market last year and this year, selling government bonds with a negative yield.

 

“The strategy is not fully taking advantage of the potential of the current extraordinary prosperity of the Czech economy,” said Cyrrus chief economist Lukas Kovanda.

 

“In the current ‘sunny’ macroeconomic situation, the Finance Ministry and the entire government should have an ambition not only to cut the relative debt to GDP ratio but also its absolute figure,” Kovanda said.

 

He sees as positive the ministry’s plan to extend the average maturity of the state debt in 2018.

 

“Should there be an unexpected change of conditions on the Czech government bonds market during 2018 the ministry reserves the possibility to issue no new bonds,” the material said.

 

For next year, the ministry envisages a Kc50bn state budget gap, repayment of three bond issues worth Kc184.4bn, instalment on foreign bond issues worth EUR2bn (some Kc51bn), instalment on four issues of government savings bonds for Kc16.4bn and refinancing of state treasury bills issues worth Kc44bn.

 

State debt service costs are expected to rise next year. According to the ministry, net interest spending will reach Kc45.5bn, while the real spending so far this year totals Kc39.4bn, Kc6.5bn less than planned by the ministry. This amount was used to cover pay rises for cultural and social care workers or non teaching staff in education this year, said Finance Minister Alena Schillerova.

 

The debt-to-GDP ratio is foreseen to fall to 32.4 percent this year and 31.4 percent next year.

 

The state debt will grow to Kc1,623bn this year, posting an annual hike of some Kc10bn.

 

The ministry pointed out it reserves the possibility to respond flexibly to the development on the financial markets. That is why it will make public an updated version of the state debt financing and management strategy in June 2018. It did not rule out the possibility of a quarterly update of the strategy.