Treasury Chief Says New Debt Management Plan To Cap Annual Cost Of Public Debt Service

05.23.2012 By Razvan Voican

Updating Romania’s public debt management strategy, with an emphasis on limiting the annual rates and interests as share of the gross domestic product, stimulating authorized primary dealers to increase trading on the secondary market and listing the sovereign bonds among the reference indicators in the emerging markets -- such as the ones published by bank giants JP Morgan and Barclays --, are some of Cristian Sporis’ main goals for his term as secretary of state with the Finance Ministry, responsible for the State Treasury.

"At its core, the new management strategy aims to increase transparency in relation to banks and other investors, to stimulate longer maturities of state treasuries to avoid risky payment peaks and to set an annual cap regarding the public debt service as share of GDP so we can have an additional safety net," Sporis said.

The last objective "is very important", because Romania's public debt has been raising toward 40% of GDP, the banker recruited from Raiffeisen Bank to consolidate the state's debt management strategy noted.

Sporis, 36, said the new version of the debt management strategy should be ready in approximately two weeks.

Romania's public debt topped 235 billion lei (EUR54 billion) in the first quarter, equal to 38.6% of GDP. The figure is 150 basis points higher compared with the end of 2010.

For 2012, the authorities estimate the public debt service will peak to a record of some RON64 billion (EUR14.5 billion), while the debt payment level is estimated to exceed the equivalent of 10% of GDP. The new debt management strategy could set a similar cap for the annual debt payments.

The Finance Ministry forecasts the public debt service will drop by roughly one quarter to RON48.6 billion in 2013, also helped by the ministry's strategy to increase the volume of medium-term notes up to 52% of its portfolio.

The ministry has been selling less and less short-term treasuries since January: it organized only three auctions to sell six-month paper in the first quarter, while in April and May it has sold treasuries with maturity of one year and longer.

At the same time, the average yield for six-month and one-year treasuries dropped toward 5% a year, from around 6.5% a year in the fourth quarter of 2011. The downward trend has slowed down recently, influenced by financial turmoil on external markets.

However, Sporis said the ministry has set up a comfortable liquidity buffer, enough to ensure the cash necessary for several months if market conditions become adverse.

The ministry recently repaid EUR700 million of a Eurobond that matured early May. Following the operation, the liquidity buffer dropped to around EUR4 billion.

According to Sporis, Romania could tap the external markets for a second time this year in the fall, after it sold $2.25 billion in 10-year US dollar-denominated bonds in January. The ministry announced plans to sell EUR2.5 billion at foreign auctions in 2012.

(English version by Florentina Dragu)