09 August 2006

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Business Today

Government’s cost to service debt stands at 5.6 per cent

Government will owe Lm1,335.1 million in debt by year’s end of which 94 per cent is made up of Malta Government Stock and Treasury Bills.
The funds for these debts have been provided for by the Maltese citizens, institutional investors and commercial banks. Moreover, the Government owes Lm80 million for loans obtained from domestic and foreign lenders.
The statistics emerge from the latest Central Bank news release focusing on government debt and the cost of its servicing.
The amount of Government guaranteed debt usually on behalf of its entities is not yet given. The amounts owing exclude also the amounts due as state guarantees for the debts of the Malta Drydocks and the Malta Shipbuilding.
To service the debt, interest paid by government till year’s end will be Lm75.9million. Another Lm11.8 million shall be settled as capital repayments to both local and overseas lenders. Whilst the amount of debt servicing that will be paid in 2006 is 6.47% of the total dues, the average interest rate of the government loans, treasury stock, and Malta Government Stock is 5.6%. Government stock that is currently maturing is at a higher rate than the current lending rate being offered by the government. Also when the stocks are redeemed, the government is not issuing the equivalent amount for new issues. So the strategy is to loan less and at a lower rate to improve the gross central government debt and its servicing costs. However, if the monetary policy advisors of the Central Bank this year raise, yet again the intervention rate, any new debts will be serviced at a higher cost.
When the government’s banker will issue the figures as at interim 2006, the projections for year end will be more reliable. In the meantime the amount of debt that is expected to be guaranteed as at year end is not available.
Reducing debt levels, financing costs and the cost of servicing the debt is on the agenda to show healthy figures for Malta’s finances as part of the exercise to ensure we will meet and maintain the financial stability to have the EURO as our currency.

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