/ world today news/ The state loans that governments have taken out in recent years create a serious risk for public finances. The reason is that the new issues have a short service period and in 7 of the next 12 years the state will have debt payments in the amount of over 1 billion BGN.
This is what he wrote in his last issue of the Economist magazine.
Practice shows that in such a case the managers most often resort to refinancing through external loans, but there is a very serious risk that they will be withdrawn under less favorable conditions. The paper’s thesis is that too many debt issues are maturing in a relatively short period of time, and it is almost certain that refinancing rates will be higher than they are now, and most likely, except for rolling over old debts, governments they will be forced to take out loans in order to finance budget deficits.
The situation will not illustrate a classic debt spiral, but the negative consequences of falling into it. Avoiding such a development is possible, but requires measures to limit the budget deficit, and it is a matter of political choice whether it will happen by optimizing public spending or after increasing the tax burden, the magazine writes. It adds that foreign investors are already showing a tendency to seek speculative profit from Bulgarian debt, submitting orders for the newly issued bonds, with a higher yield compared to past issues.
An example of this is the low oversubscription of the proposed 12-year bonds and the fact that the yield sought by investors was 0.1 percentage points higher than the 12-year issue that the government placed last March. The publication cites its survey of market representatives, according to which the financial markets are already taking into account the sustainable rise of the government debt relative to the country’s economy.
Last but not least, “Economist” shows that Romania is ahead of our country in terms of reputation as a debtor in international markets. As an argument, it is stated that investors tend to pay a lower premium over the base rate for Romanian debt with a service term of nine years, compared to Bulgarian bonds with a seven-year maturity. In normal market conditions, the yield as well as the premium over the base interest on a given bond grow with its maturity and the fact that Romania’s 9-year bonds have a lower premium than Bulgaria’s 7-year bonds shows a higher valuation for our northern neighbor.
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