Czechs weigh foreign bond or higher local issuance

PRAGUE, Oct 9 (Reuters) - The Czech Finance Ministry will consider returning to foreign bond markets or increasing local currency debt issuance before the year-end to meet unplanned payments, the ministry said on Monday.

It said in a statement it needed to borrow an additional 18.8 billion crowns ($840 million) this year to settle a past guarantee payment to the central bank and cover an unexpected rise in last year's pension account balance.

An original debt financing programme set the country's gross borrowing needs at 155.5 billion crowns.

Increasing foreign debt issuance would run counter to the ministry's pledge to refrain from tapping international debt markets for the rest of 2006, after issuing 30 billion yen ($252 million) worth of 30-year bonds in mid-January.

A ministry official, who asked not to be named, told Reuters preparation for a possible Eurobond issue was under way at the ministry but it had yet to be determined whether any transaction would take place this year or next year.

If Finance Minister Vlastimil Tlusty decides against foreign borrowing, the ministry said it would boost the issuance of medium- and long-term local currency government bonds and raise short-term Treasury bill borrowing between October and December.

The ministry has previously scheduled bond auctions to offer 44 billion crowns' worth of medium- and long-term domestic government bonds in the fourth quarter.

"If the finance minister makes no decision on further long-term foreign funding operations even in the light of increasing government borrowing needs in 2006, it will be unavoidable to revise the financing programme..., including revision of issuance calendars and repeated growth of the amount of T-Bills outstanding," the finance ministry said in the statement.

The ministry said last month it was considering tapping the Eurobond market with a sovereign debt offering next year.

But it added it would borrow abroad only if market conditions are favourable, especially compared with the local currency bond market where low credit costs have enabled the government to raise relatively cheap funds.

Long-dated domestic debt yields have traded only 15-20 basis points above euro zone benchmarks thanks to credible monetary policy and lower Czech short-term policy rates, leaving the government's debt financing costs the lowest in central Europe. ((Reporting by Marek Petrus; Editing by David Stamp; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477)) ($1=22.38 Czech Crown) ($1=119.15 Japanese Yen)

Keywords: MARKETS CZECH BONDS