Ankara funding borrowing
Rolling over existing bonds
Issues new securities
Ankara faces a busy summer of funding its borrowing programme, rolling over existing bonds and issuing new securities to bridge a widening budget deficit, as it contends with high interest rates and persistent inflation.
On Tuesday, the finance and treasury ministry conducted three lira-denominated auctions of bonds and treasury bills with a combined value of $2.5 billion.
The three offerings – a seven-year floating rate note, a nine-month treasury-bill, and a four-year fixed coupon bond – attracted bids from both public institutions and the private sector, drawn by the high level of returns.
The seven-year note offered an interest rate of 34.85 percent, while the two other instruments offered rates of just over 45 percent each. All were oversubscribed.
Tuesday’s offering was the latest in an accelerated programme of issuance by the treasury. A previous euro-denominated auction worth $2 billion on May 23 was oversubscribed two and a half times.
In the period June to August, the treasury must redeem $23.4 billion in domestic debt, while borrowing $26.1 billion, the ministry’s website shows. Up to eight auctions are due to be held in June alone.
Central to the increased activity is the widening budget deficit and the need to service existing debt, exacerbated by lower than projected earnings from corporation and income tax, Iris Cibre, a financial market executive, told AGBI.
The one week repo rate currently stands at 46 percent, according to the central bank, while inflation for May edged down to 35.4 percent.
“The main reason behind the budget deficit going above expectations is the very high increases in interest rate costs,” Cibre said. “Public spending excluding interest rates has not increased greatly, the rise being in line with inflation.”
Some of the domestic borrowing will be used to pay down existing debt but the majority will be deployed to meet interest payments.
Domestic rates are trending downward – the central bank is expected to cut the repo rate, its main policy instrument, either later this month or in July – but the state is still locked into high levels of interest.
Almost three out of every four lira of domestic debt repayment was used to cover interest in the first quarter, with just 25 percent paying down principle, according to Finance and Treasury Ministry data.
This is a sharp rise over 2024, when 57 percent of borrowing was directed to paying off interest, itself double the 28 percent of total service payments in 2021.
