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GOVERNMENT DEBT MANAGEMENT IN LITHUANIA Presented by Audrius elionis, Director of the State Treasury Department of the Ministry of Finance Vilnius, June 2011 Slide 2 ORGANISATIONAL STRUCTURE AND LEGAL FRAMEWORK The organizational structure of the Government debt management : The Ministry of Finance borrows on behalf of the Government and manages its debt The State Treasury department of the Ministry of Finance is the responsible unit within the Ministry Borrowing, risk management and accounting procedures are strictly separated by establishing front office, middle office and back office in the State Treasury Department 2 Legal environment and control: Law on State Debt set of borrowing purposes, borrowing procedures, etc. Law on State Budget of appropriate year set of limits related to the net change in debt liabilities and guarantees Governments Medium Term Debt and Borrowing Strategy set of debt risk limits, medium-term borrowing and debt management goals Accountability report submitted to the Parliament Slide 3 CURRENT DEBT MANAGEMENT STRATEGY Limit nameLimitAs at 31 March 2011 Residual short-term debt of total debt < 25%5.5% Weighted average term to maturity >4 years5.7 years Macaulay duration2,5-5 years3.8 years Floating rate debt of total debt < 15%2.6% Guaranteed debt of GDP 7%1.2% Maintaining acceptable interest rate, refinancing and exchange rate risks Increasing liquidity of the Government securities Effectively managing the public financial resources Developing measures to reduce refinancing risk by accumulating resources for significant outstanding debt repayments or using other techniques Eliminating foreign exchange risk by fully hedging the US$-denominated bond issuances into EUR Risk limits Debt management objectives The set of limits for municipalities debt and borrowing (total debt, net borrowing, guaranteed debt limits) Borrowing of Social funds (Sodra) only with the permission of the Ministry of Finance Debt level control 3 Slide 4 LITHUANIA WAS, REMAINS AND WILL BE VISIBLE IN CAPITAL MARKETS Lithuanias benchmark bond issuance history 2002-2011 First bond issue in foreign capital markets was in 1995 Since 2002 the Government regularly issued Eurobonds that resulted in three euro denominated benchmark Eurobonds (EUR 1 bn each) maturing in 2012, 2013 and 2016 After the market crash in 2008 and the financial turmoil in 2009, the Government broadened its investor base by issuing US dollar denominated Eurobonds The Government is an active participant in the domestic market issuing bonds and Treasury bills on regular basis, as well as organizing retail sale of savings notes 4 Market crash after Lehman collapse Slide 5 GOVERNMENTS BORROWING INSTRUMENTS USED IN VARIOUS TIMES (LTL mill) 5 Market crash after Lehman Brothers default Relatively stable market environment Market turmoilSovereigns debt crisis Slide 6 DEBT LEVEL AND KEY BORROWING REQUIREMENT DRIVERS General Government debt (% of GDP) Government borrowing requirements General government deficit, ESA95 (% of GDP) Source: MoF, Convergence Programme 2011 Central Government debt repayment schedule, LTL mill 6 Slide 7 LITHUANIAS DEBT LEVEL IN THE EU CONTEXT General Government debt in 2010 (% of GDP) Source: MoF, Eurostat, Convergence Programme 2011 Lithuanias General Government debt level is the 6th lowest among EU countries 7 Slide 8 CENTRAL GOVERNMENT DEBT STUCTURE (31 March 2011) 8 Debt by instrumentsDebt by creditors Domestic securities by residual maturity Share of foreign vs. domestic debt Slide 9 SIGNS OF MARKET CONFIDENCE 9 Sources: Bloomberg, Ministry of Finance, The Depository Trust & Clearing Corporation Slide 10 DOMESTIC MARKET DEVELOPMENTS 10 Vilibor Slide 11 MAIN DEBT MANAGEMENT OBJECTIVES IN 2011-2014 Focus on increasing the residual maturity of the domestic debt to more than 2 years Retaining domestic debt share not lower than 20% of the total Central Government debt and aiming to increase it to 25% Reducing the refinancing risk of the Eurobond redemptions in 2012 and 2013 Further developing the domestic Governments securities market 1 Slide 12 LONG TERM CREDIT RATINGS CountryMoodysStandard & PoorsFitch LithuaniaBaa1BBBBBB* LatviaBaa3BB+*BBB-* EstoniaA1A*A HungaryBaa3**BBB-** Czech RepublicA1A*A+* SlovakiaA1A+ PolandA2A- * - positive outlook, ** - negative outlook 1212 Slide 13 Thank you!