Cyprus' Future Financing: A Blend of Green Bonds, EMTN Issuances, and Supranational Loans
Annual Financial Needs Capped at 10% of Annual GDP Through 2030
The Public Debt Management Office of the Ministry of Finance is keen to avoid the risks of refinancing its public debt. The office aims to maintain a balanced debt repayment schedule and a satisfactory average remaining debt duration.
For the period 2023-2025, the primary financing tool will be the issuance of international bonds (EMTN) due to the depth of the market. This move continues the progress made in previous years, aligning with the strategic objectives of debt management. These international issuances can be introduced to multiple stock exchanges through consortiums.
Based on information from the Office, Brief reports that there is an intention to borrow in the form of loans from supranational organizations for long-term financing, such as for new infrastructure projects related to green transition, digital transformation, or ongoing initiatives.
In line with funding for green and social projects, a green bond is being issued, following guidelines for risk management, market development, and expanding the investment base.
A report from the Office highlights that the goal of maintaining the average remaining duration of tradable debt at over 7 years is to provide the state with the flexibility to redesign its strategy, ensuring that the borrowing risk level is acceptable and manageable.
The ongoing Russian-Ukrainian war, combined with the economic impacts of EU sanctions on Russia, is expected to introduce significant uncertainties in public finances.
Additionally, the aim is to ensure that short-term debt, with an initial issuance maturity of up to 12 months, does not exceed 3% of the total public debt for 2023, 2024, and 2025. Maintaining the debt at this level targets minimizing refinancing costs and limiting interest rate risk during periods of high interest rate volatility.
Another area the Office covers is liquidity available for meeting financial needs from 2023 to 2025.
Reliable sources explain that "maintaining a sufficient level of precautionary liquidity allows for greater flexibility in executing main financial transactions in case adverse conditions delay or disrupt market access."
The duration of debt issuances is chosen so that annual financial needs do not surpass 10% of the respective annual GDP until 2030. This approach aims to find the necessary financing resources to meet the financial needs that can be addressed under stable market conditions.
According to the IMF's risk assessment framework, "gross financing needs up to 15% of GDP are acceptable for economies with a high credit rating. However, in Cyprus' case, a more conservative limit has been set due to anticipated lower market liquidity, which may influence investor behavior during unstable periods."