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Ministry of Finance strategizes new international bond issuance to fund the budget

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The Ministry of Finance is preparing a new issuance of government bonds on the international market to meet the financing needs of this year’s budget, according to unofficial information from various sources. This was recently discussed at a Government session under the internal agenda, as reported by unofficial sources.

The government officials did not want to comment on the discussion at the Government session, but they confirmed that they are preparing a prospectus for the bond issuance.

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According to official data from the Ministry of Finance, the state treasury faces the repayment of nearly 100 million euros in April, based on previously issued domestic bonds (GB24), which is one of the largest debt repayments this year that cannot be guaranteed from regular budget revenues.

For this reason, as explained by a source, new borrowing is expected to take place this month.

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“This year, according to projections, a total of 656.7 million euros is foreseen for debt repayment, of which 518.63 million relates to the repayment of the principal, and 138.07 million to interest,” said the Ministry of Finance.

The budget law for this year allows borrowing up to 650 million euros for securing the necessary funds this year, as well as borrowing up to 500 million euros for debt refinancing and creating a fiscal reserve for the next year.

This money would be secured through concluding credit arrangements with international financial institutions, domestic and/or foreign banks, issuing government notes and/or bonds on domestic and/or international markets, as well as concluding bilateral or other credit arrangements.

“The Ministry of Finance is monitoring developments in the international market to determine the most favorable moment to enter the market for a potential bond issuance. In this regard, preparing a Prospectus is necessary – a document about the country containing all updated necessary information about Montenegro, from the period since the last Prospectus in 2020, as well as fiscal projections for the next medium-term period. Therefore, it is expected that the Ministry of Finance has started preparing the Prospectus to be ready to enter the international market when conditions are met in the coming period,” stated the government.

They mentioned that the Ministry of Finance is considering the possibility of issuing bonds and concluding arrangements with international financial institutions and commercial banks, to decide on the appropriate time and extent of arrangements for budget financing based on market trends.

“Compared to the previous period, the financial market is more stable, and conditions are moving towards reducing interest rates, which will affect future borrowing on the international/domestic market,” highlighted the Ministry of Finance.

In accordance with the Budget Law for this year, the funds obtained through borrowing will be used exclusively for financing the repayment of existing debt, as well as financing the capital budget and creating a fiscal reserve for the next year.

“No new budget expenses will be financed from borrowing except for the capital budget, thus fulfilling the golden rule – that all current obligations are financed from current revenues,” stated the Ministry.

Last year, the new government raised 159 million euros through the issuance of government notes and direct borrowing from commercial banks, which was entirely spent in December, as officially confirmed recently by the Ministry of Finance.

They added that, compared to the previous period, the financial market is more stable, and conditions are moving towards reducing interest rates, which will affect future borrowing on the international/domestic market.

In December, the Ministry of Finance concluded contracts with eight domestic commercial banks with an average weighted interest rate of 6.55% fixed annually, with an average maturity of 54 months, and the majority of contracts were concluded for a maturity of five years. All these borrowings were secretly discussed in the Government.

“We emphasize that when submitting materials to the Government, the negotiation process with a certain number of banks was ongoing, contracts were marked ‘confidential’ by the banks, and for these reasons, it was decided to mark the information with the degree of confidentiality ‘internal.’ Therefore, since each contract has the mark of the degree of confidentiality ‘confidential’ from banks, and thus from the Ministry of Finance, it is currently not possible to provide data individually for each bank,” said the Ministry of Finance.

As for government notes, the new government had three issuances totaling 50 million, so the average weighted interest rate on the total amount of issued notes is 3.7%.

The budget deficit in December was 146 million, instead of the planned ten million, leaving the state treasury short of a total of 172 million. It is expected that data on budget execution for the first month of this year will be announced soon.

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