Public Debt Management Office: Robust cash buffers to tackle uncertainty

The robust cash buffers of the Republic of Cyprus are expected to support the government in tackling uncertainty observed in the global economy, the Finance Ministry’s Public Debt Management Office (PDMO) has said.

In its annual report for 2023, the PDMO said the government’s cash reserves at end-2023 amounted to almost €2.83 billion (deposited at the CBC) covering 132% of debt maturing in the next 12 months. Excluding cash reserves, Cyprus’ net debt-to-GDP ratio amounted to 68% of GDP compared with a gross debt ratio of 77.4%, the PDMO added.

“The strong cash position is expected to support the government to cope with the global economic uncertainty and restrain any negative effects on the cost-risk indicators at moderate levels,” the PDMO noted.

Amid the rising trajectory in global interest rates and the expectations that they will remain higher for the foreseeable future which will have a negative impact on servicing public debt, “the PDMO used a significant amount of cash buffer to cover financing needs for the year 2023 leading the public debt as a percentage of GDP to lower levels,” the report added. According to PDMO data, debt payments amounted to €740 million.

Since the 2020 COVID-19 pandemic which prompted the government to proceed with sizeable debt issuances, Cyprus public debt to GDP ratio has fallen by almost 39 percentage points, driven mainly by strong economic growth that boosted GDP (denominator effect).

The PDMO despite the strong cash position of the government as a result of the fiscal surplus in 2023 and the fact that medium-term economic prospects remain solid in the medium-term, on the 17th of January 2023, the Council of Ministers approved the proposal of the PDMO to reset the coverage target of financing needs in the General Government Account from 9 to 12 months period for the 1st quarter of 2024, compared with 9 months of the previous target.

“The reasons for this proposal were the fact that the global economy is expected to remain uncertain throughout 2024,” the PDMO said.

Significant but manageable debt maturities

Furthermore, the PDMO said that the majority of the Republic’s debt, amounting to €11.62 billion representing 51% of the total debt is maturing in the period of 2024 – 2028, with €6.6 billion in European Medium Term Notes (EMNT) and €4.6 billion in loans.

According to the report, 2028 marks the highest concentration of maturing debt with maturities amounting to €2.8 billion, of which €1.5 billion in EMTN bonds and €1.29 billion in the fourth tranche for the repayment of the loan Cyprus received by the European Stability Mechanism during the 2013 financial crisis.

“The year 2028 which is the peak of the public debt is under continuous monitoring, in order to avoid adding new debt on this year. However, taking into consideration the strong recovery of the economy and the significant improvement on the public finances, the government will be in a position to refinance the said debt,” PDMO said.

Moreover, the PDMO said that in future it intends to issue at least one benchmark EMTN per year between €1.0 and €1.5 bn in order to cover the financing needs of the government.

“In order to smooth out further the debt maturity profile, the focus is drawn to longer-term debt issuances provided that market conditions and the new interest rate environment are favourable,” the PDMO added.

The average remaining maturity of marketable debt exhibited a small increase reaching 8 years as at the end of 2023 compared to 7.9 years at the end of 2022.