"The need for borrowing in the coming years is quite high, as it is necessary to borrow not only to refinance Eurobonds but also to finance the budget deficit and loans to local governments. The total planned borrowing for the next four years is at least €3 billion annually. Of course, this also depends on the budget deficit that is eventually approved and how tax revenues are met," said Āboliņš.
The plan is to raise this money through various instruments, but mainly through bond issues on international financial markets in euro or US dollars, as the Treasury did this year.
Bond issues on international financial markets would account for about two-thirds, or around €2 billion a year, Āboliņš said. However, it all depends on the situation on the financial markets. The rest could be raised through auctions.
As for the loans from international financial institutions, Āboliņš said that the loan agreement is for an indicative amount of EUR 200 million, with the possibility to use this loan for several years, so it is a relatively small part.
At the end of May, the Treasury issued USD 1.25 billion worth of bonds, which were then swapped into euros. Asked why Latvia needed to issue bonds in US dollars, Āboliņš explained that the first reason was strategic - diversification or broadening of the investor base.
Although there is some overlap in the investor base, as the same investor can invest in both euros and US dollars, at the same time Latvia also had a sufficient number of US investors.
"This, in turn, is important for two reasons. First, if there are problems with borrowing in a market, we have alternatives. The second is that if we model some negative scenarios where we have to significantly increase, for example, investments in defense, additional borrowing, then we already have a track record with these investors, they already know the Latvian story and are much more ready to lend. In addition, there are already Latvian bonds on the market in US dollars, the rate of which can be used as a basis for pricing future bonds, and then it is much easier to price these transactions," explained Āboliņš.
