ROMANIA 12-14 March 2014 Gemloc Conference
Stefan Nanu General Director Treasury and Public Debt Department Ministry of Public Finance Diana Popescu Deputy General Director Treasury and Public Debt Department Ministry of Public Finance 2
1. Debt Management Policy and Actors........4 2. Characteristics of outstanding government debt........5 3. Primary market performance.... 8 4. Secondary market performance....... 9 5. 2014 Funding Plan......10 6. Debt Management in 2014...11 7. Strengthening Public Debt and Cash Management in Romania....12 3
1. Debt management policy and actors Debt management policy Government debt management policy involves the establishment and execution of strategy for managing the Government debt portfolio in order to met funding requirements and to achieve the following objectives: Ensuring the needs of central government funding and payment obligations amid minimize costs in the medium and long term; Limiting the financial risks associated with government debt portfolio, in particular by extending the average maturity of outstanding debt, and Development of domestic markets for government securities. Debt Management Actors Government of Romania through MoPF - Treasury and Public Debt Department; National Bank of Romania; Primary Dealer System. 4
2. Characteristics of outstanding government debt Romania s debt-to-gdp ratio remains one of the lowest in the EU and CEE regions General government debt *) was 38.2% of GDP at end December 2013 and is forecasted to stay below 40 % of GDP in the medium term interest payments expenditures from the general consolidated budget to GDP 1.8% - end of 2012 1.7% - end of 2013 1.7% - estimated for 2014 Average weighted time to maturity of government public debt, according to national legislation at the end of December 2013 was 4.4 years, versus 3.9 years at the end of 2012 Average weighted time to maturity of government securities, according to national legislation issued on domestic market at the end of December was 2.4 years, versus 1.7 years at the end of 2012 *) According to EU methodology General government debt/gdp (%, September 2013) comparison EU 28 Spania Hungary Austria Netherlands Poland Slovakia Chech Republic Denmark Sweden Romania Latvia Luxembourg Bulgaria Estonia 58.0% 57.2% 46.0% 46.3% 40.7% 38.9% 38.0% 27.7% 17.3% 10.0% 86.8% 93.4% 80.2% 77.1% 73.6% Source: Eurostat newsrelease euro indicators 22 January 2014 5
2. Characteristics of outstanding government debt (cont.) General government debt/gdp (%, end of period) according to EU methodology 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% External government debt (% to GDP) Domestic government debt (% of GDP) 38.0% 38.2% 34.7% 30.5% 15.6% 17.6% 18.7% 17.3% 14.9% 17.1% 19.3% 20.9% 2010 2011 2012 Dec-13 Public government debt service projection (RON billion) 100.0 80.0 60.0 40.0 20.0 0.0 65.8 10.2 57.1 11.0 44.6 42.1 8.8 7.2 55.6 46.1 35.8 34.8 principal interest and fees 26.6 26.8 5.6 4.6 21.0 22.2 2013 2014 2015 2016 2017 2018 Note: based on contracted debt at end Dec 2013, according to national legislation 6
2. Characteristics of outstanding public government debt (cont.) By type of initial maturities (billion lei) By instruments ( % outstanding public government debt) 250.0 200.0 short term medium and long term 183.4 222.6 Loans from surplus of State Treasury account, 7.7 T-bills, 4.1 150.0 118.4 142.6 Loans, 31.2 Bonds, 38.9 100.0 50.0 64.1 67.8 43.4 29.8 Eurobonds, 18.1 0.0 2010 2011 2012 Dec-13 Public government debt by Initial maturity By interest type By currency Over 5 years, 50.7% Under 1 year, 11.7% 1 to 5 years, 37.6% Variable, 23.2% Fixed, 76.8% EUR, 46.2 SDR, 2.0 Other, 1.0 USD, 6.4 RON, 44.4 Source: Ministry of Public Finance Note : Data according to national legislation 7
volume of the new issuances (mln. lei) 7-Jan-13 7-Jan-13 13-Jan-13 14-Jan-13 14-Jan-13 19-Jan-13 21-Jan-13 26-Jan-13 4-Feb-13 4-Feb-13 9-Feb-13 11-Feb-13 16-Feb-13 18-Feb-13 23-Feb-13 9-Mar-13 10-Mar-13 15-Mar-13 17-Mar-13 17-Mar-13 22-Mar-13 4-Apr-13 8-Apr-13 15-Apr-13 18-Apr-13 22-Apr-13 25-Apr-13 11-May-13 11-May-13 13-May-13 18-May-13 20-May-13 25-May-13 27-May-13 3-Jun-13 06-Jun-13 10-Jun-13 17-Jun-13 20-Jun-13 25-Jun-13 8-Jul-13 11-Jul-13 15-Jul-13 22-Jul-13 25-Jul-13 5-Aug-13 8-Aug-13 13-Aug-13 19-Aug-13 22-Aug-13 9-Sep-13 14-Sep-13 16-Sep-13 28-Sep-13 3-Oct-13 3-Oct-13 7-Oct-13 12-Oct-13 19-Oct-13 20-Oct-13 28-Oct-13 4-Nov-13 7-Nov-13 11-Nov-13 14-Nov-13 18-Nov-13 25-Nov-13 2-Dec-13 5-Dec-13 9-Dec-13 12-Dec-13 16-Dec-13 19-Dec-13 3. Primary market performance Total outstanding local government securities up-to-date - Ron 108.2 bn o/w: Ron 91.4 bn (Ron denominated) Ron 16.8 bn (Eur denominated) Government securities issued in 2013 (initial maturity) Dec 2013 Distribution by investor type 7Y bonds 5% 10 Y bonds 10% 15 Y bonds 0% 6M T-bills 4% 1Y T-bills 15% Non-resident holdings 21.3% Local commercial bank 55.2% 5 Y bonds 28% 4Y bonds 6% 3 Y bonds 26% 2 Y bonds 6% Pension funds 7.03% 3,200 2,700 2,200 1,700 1,200 700 200-300 Government securities denominated in RON issued on primary market Announced amount Auction amount auction date 8
3. Primary market performance (cont.) Domestic market yield curve evolution (Ron) Inflation and interest rates for 12m T-bills Dec. 2012 Dec. 2013 Source: Ministry of Public Finance 9
4. Secondary Market Performance Most tradable government securities in December 2013 JP Morgan Index evolution Date Number of Issues Outstanding amounts (Local MLM) GBI-EM Current wgt. (%) Mar. 2013 3 bonds 11.446 0.54 Jan. 2014 4 bonds 28.160 1,16 Source: NBR Government securities liquidity in 2013 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 26,8% 39,27% 19,4% 22,89% 32,0% 31,8% 25,4% 24,7% 27,6% 40,7% 43,5% 38,1% 52,8% 0,0% Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 10
5. 2014 Funding program Financing sources: Domestic market (government securities) External market (Eurobonds, loans from official institution (IFIs and government agencies ) and commercial banks. Total financing needs of General government (EUR bn) 13.5 I. Deficit 3.2 domestic market 1.6 external market 1.6 II. Redemption of government securities at end 2013 III. Principal repayment for loans 2.0 IMF 1 IFIs and commercial banks 0.8 8.3 Maturing government securities in 2014 (Ron and FCY), local market 8 Local government securities in EUR (bn RON) Local government securities in RON (bn RON) 7 7.0 6.8 5.76 6 5.7 5 5 4 3 2.8 2 1 1 0.8 1 1.1 0.3 0 0.8 Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec. local authorities 0.2 Redemption profile of government securities and external package YTD at March 11, 2014 bln 76 6.6 5.5 65 5 4 4 3 3 2 1 0 1.3 1.3 1 3.4 3.1 1.5 1.5 0.9 0.9 0.2 4.2 3.6 3.2 1.5 1.5 2.6 2 1.6 1.6 1.5 1.5 2 1.5 1.2 1.2 1.4 1.2 1.4 11 0.7 0.7 0.6 0.5 RON RON local local securities on on domestic market EUR EUR local local securities on on domestic market EUR EUR Eurobonds USD USD Eurobonds EU EU IBRD IBRD 1.7 1.7 1.1 1.1 1.1 0.6 0.6 0.7 0.7 0.7 0.7 0.4 0.4 0.2 0.2 2014 2015 2016 2017 2018 2019 2020 2021 2022 2022 2024 2023 2023 2024 2027 2027 2044 2044 IMF IMF 11
6. Debt Management in 2014 Debt management targets Fulfilling the objectives of the Government Debt Management Strategy 2013-2015 Key Objectives for 2014-2015 Ensure the government meets its financing needs and payment obligations, while minimizing medium and long-term costs Limit risks in the government public debt portfolio, especially by extending the average remaining maturity Develop the domestic market for government securities (increase efficiency, transparency and predictability) Steps to Achieve the Objectives Flexible approach in selecting the financing sources Increase the remaining maturity of the debt portfolio /of local government securities, by extending the maturities of government securities Extend and diversify the domestic market investor base Access the external capital markets in a flexible manner Consolidate the FX financial buffer of the State Treasury Public Debt Strategy for the period 2014-2016 to be revised in the first quarter of 2014 Legal and operational framework for the liabilities management (buy backs and bond exchanges) and for an active cash management (reverse repo) to be established with the support of the WB technical assistance Parameters *) December 2013 A.Currency risk Indicative targets according to government public debt strategy 2013-2015 Share of domestic currency debt in total (% of total) 39.5% min 40% Share of EUR denominate debt in foreign currency denominated debt (% of total) 83.0% min 70% B.Refinancing risk Debt maturing in 1 year (% of total) 19.0% max 25% Local currency debt maturing in 1 year (% of total) 33.0% max 45% in 2013, and lower thereafter ATM for total debt (years) 4.4 min 4 years ATM for local currency debt (years) 2.7 C.Interest rate risk min 2 years in 2013 and higher thereafter Debt re-fixing in 1 year (%of total) 26.0% max 35% Local currency debt re-fixing in 1 year (% of total) 31.0% Max 45% in 2013, and lower thereafter min 3.5 years ATR for total debt (years) 4.3 min 3.5 years ATR for local currency debt (years) 2.7 Min 2 years in 2013 and higher thereafter *) without loans from the availabilities of the General Account of Treasury 12
7. Strengthening Public Debt and Cash Management * Setting basis for a liquid, transparent, secure and efficient debt market through: Enhancing the primary auction system developed by NBR (electronic transfer of the bids) in place starting with March 1 st, 2014; New regulation to support increased competitiveness among PDs new set of appraisal criteria focusing on PDs performance on the primary and secondary market (underwriting commitment of 2% of the total volume of government securities issued in the primary market auctions and 3% including the amounts acquired for clients, incentives: non-competitive auctions, favorable treatment for bond issuances on the foreign markets); Establish electronic trading platform (ETP)* additional benefits for government securities - price discovery, monitoring and compliance by PDs with price quoting obligation for the selected benchamrk bonds => enhance market liquidity; Primary dealer agreement and PD Code consolidate provisions governing the PD status in one single contractual arrangement (duties, responsibilities and privileges regarding the primary and secondary government securities market); Liability management operations* (buy backs, bond exchanges, financial derivatives) in order to manage the refinancing risk, repurchase of low and illiquid issuances distorting the yield curve and build greater liquidity for new benchmark bonds (on-the-run) legal and operational framework as well as technical infrastructure, envisaged for late 2014/beginning 2015; still a Moving to an active cash management* (short-term T-bills and reverse repo) while fine tuning the forecasting function; Improving the management of the hard currency proceeds available in the treasury buffer Gradual lowering of the face value in order to facilitate the access of the retail investors. Developing the capacity to manage the risk of the debt portfolio, design and implement a debt management strategy*: Public Debt Strategy for the period 2014-2016 to be revised in the first quarter of 2014 increase predictability and transparency, actions related to government securities: lengthen maturities, building up liquid benchmarks across the yield curve, increasing the liquidity of the on-the-run bonds, a more predictable issuance plan etc.; Broadening the investor base pension funds, insurance companies, retail investors MoPF official page on Bloomberg providing public debt information and reports, organization of meetings with institutional investors, deal / non-deal roadshows. Improving the infrastructure and debt management processes: Simplifying the debt service process* (moving from a manual, paper-based process to an electronic/automatic one); Establishing auction facilities in MPF to run cash management operations and liability management operations; Connecting in a secure way different systems used in debt management (links between (FTI) to the primary auction system, auctions faciltiies which will be developed for cash management and liabilities management operations) * With the support of the WB technical assistance