* Foreign bond still possible
* Treasury system eases refinancing pressure
* Ministry preparing bonds for public
By Peter Laca
BRATISLAVA, April 16 (Reuters) - The Slovak Finance Ministry
is in a comfortable financing position and has options to avoid
an excessive rise in local borrowing costs despite a bigger
budget deficit, Deputy Minister Peter Kazimir said on Thursday.
Kazimir told Reuters the euro zone newcomer could sell a
Eurobond on a foreign market this year, after dropping such plan
in the first quarter, if foreign borrowing offered more
favourable conditions than the domestic market.
Slovakia, the 16th member of the single currency area since
January, will need to borrow more than originally planned this
year as the economy suffers from fading demand for its goods and
budget revenues slow. []
But the finance ministry says it is taking advantage of the
state treasury system, which centralises cash-flow of the
budget-linked entities and is a short-term financing cushion.
"The state treasury system is still giving us great
comfort... We are using these funds, which is easing the
pressure for external financing," Kazimir said.
"We see our position as very comfortable, compared with some
other countries that are perceived as less risky but are now
experiencing bigger difficulties with refinancing," he said.
The ministry's Debt and Liquidity Management Agency said the
cushion from the treasury system was around 5 billion euros.
Unlike older euro zone members, Slovakia has not had to
cover bank bailouts or large economic stimulus packages.
Before the crisis escalated last year, Slovakia had seen
funding needs at 4 billion euros for 2009. It has sold bonds and
bills with a total value of 2.3 billion euro so far this year.
The country will need to raise more than originally expected
because the budget deficit will be bigger than planned, but
Kazimir declined to say how much the borrowing might rise.
FOREIGN BOND POSSIBLE
Kazimir said domestic borrowing was "quite successful" so
far this year and the refinancing cost was lower than planned,
partly thanks to entering the euro zone where the European
Central Bank cut rates to cope with the economic crisis.
Slovakia accepted higher yields in domestic bond auctions
earlier this month, with average yield rising to 4.91 percent
from a previous 4.74 percent on an 8-year bond, and to 3.96 from
3.56 percent on a 4-year paper.
The debt agency accepted yields above levels quoted on the
secondary market, which, some traders said, may have been a sign
the state acutely needed to raise more funds.
But Kazimir said the ministry did not see a worrying trend
in the refinancing cost, and added it could tap other markets if
it saw yields demanded in domestic auctions as too high.
Slovakia, with an A+ rating from Standard and Poor's and A1
by Moody's, dropped a plan to issue in the first quarter a 1
billion euro bond abroad because of lack of investors' appetite
for longer-term debt.
Kazimir said the country could return to a foreign eurobond
- with which it could approach a different pool of investors
than those buying domestic government bonds - if such borrowing
was more favourable than domestic refinancing.
"We want to be very flexible and we want to keep every
refinancing alternative open," he said when asked whether a bond
issue abroad was still possible this year.
"The reason why we have not tapped the European market so
far this year is not that it would be impossible, but because we
did not consider it favourable."
Slovakia's 10-year foreign bond now trades at levels
implying an asset-swap spread of 140 basis points, compared with
negative spread of 29 basis points for a similar German paper.
The finance ministry is also preparing a bond issuance
programme for the public, which should be a long-term scheme
used as an additional financing source.
"We are in a very advanced stage now, and an important
decision can be expected soon," said Kazimir.
(Reporting by Peter Laca; Editing by Andy Bruce)
