Finance Minister Zdravko Marić is quite satisfied with Wednesday’s issue of a five-year bond on the domestic market. Around six billion Kuna was gathered with a record low interest of 2.75% and 2.85% yield. On the other hand, economy experts feels there aren’t many reasons to celebrate
“Considering this was the lowest interest to date, we can say we are pleased. The interest was high from the banking sector and the rest of the finance industry. All went to plan, we decided upon a slightly larger amount and the price is satisfying,” Marić said, as Tportal.hr reported on July 7, 2016.
Just over half of the borrowed amount, 3.5 billion Kuna will be used to repay the old bond due on July 22. Marić pointed out the significant savings considering the old bond had a 5.75% interest rate, while the refinancing will halve it.
“The other good side of this new issue is the strengthening of the currency structure of Croatian debt as this is a Kuna issue. With is we strengthen our currency,” Marić noted.
Economy analyst Damir Novotny felt the government has nothing to brag about as borrowing in the domestic market pushes out the economy sector.
“The domestic market is exceptionally liquid thanks to the politics of the Croatian National Bank. The state took those six billion from the private sector. When the state is money hungry it pushes out entrepreneurs form the market with its relatively high profit and interest rates. Then private companies will pay even higher interest. Look at neighbouring Slovenia loaning at under 1%,” Novotny warned.
Marić feels his critique is not correct. He noted the liquidity of the system has been high for several years, but a good flow towards the economy sector has not been established.
“This is not a simple problem. The same issue is troubling the European Central Bank,” Marić stated.
According to a financing plan, the Finance Ministry plans another Euro bonds issue this year. The first attempt was in the beginning of June, postponed due to the unstable political situation in Croatia which raised the price of credit. Marić said the situation in international markets id being monitored and will be approached when opportunity arises.
Chief economist of Societe Generale Splitska Bank Zdeslav Šantić thinks Croatia without a functional government cannot approach foreign investors. He expects another issue in the domestic market.
“The level of income of the new bond issue considering the risk we have and flow of international markets is favourable. It is a result of an expansion policy of the Croatian National Bank and high liquidity of the financial system. As developments go on the international capital markets considering Brexit and Croatian high risk, domestic market conditions are much better. But in 2017 duties are higher, two domestic and one foreign loans are due, plus the budget deficit. This is a very high amount and then we will be forced to cover some of it on the foreign market,” Šantić warned.
Unlike Novotny he is not afraid the state loan with domestic banks will raise interest rates for the private sector, as the liquidity of the financial system is quite high.
