Exclusive: Transcript: Interview with Lithuanian Treasury’s Director Rasa Kavolytė

4 April 2024

By Aurėja Bobelytė – VILNIUS (Econostream) – Following is the full transcript of the interview conducted by Econostream on 3 April 2024 with Rasa Kavolytė, Director of the State Treasury Department of Lithuania’s Ministry of Finance:

Q: What impact on you, if any, will the ECB’s reduction and then termination of PEPP reinvestments have?

A: The reduction in the ECB's purchases is already happening, however, given the clearly communicated strategy, we believe the market had sufficient time to adapt. So far, we see no reduction in demand in the primary market.

Q: What are the potential implications for you of interest rate cuts starting soon in the Eurozone?

A: The main risk is probably more volatility, if market expectations and the ECB's decisions will not align, however, there is also an expectation of investors wanting to go further along the curve once the yields begin to drop in the short term.

Q: Does the new operating framework of the ECB have any bearing on your issuance operations?

A: Not really.

Q: You have previously said that you plan to collect up to €300 million this year through Government Saving Notes. Given the fact that the interest in GSN has dropped, has the forecast been adjusted?

A: The €300 million has never been a goal for us. It was set as a possible amount in our borrowing limit. Our borrowing needs decreased this year compared to what is budgeted and this decrease in part will be passed onto our saving notes issuance plans. Historically, Saving Notes cover only a small part (3-4%) of the total borrowing requirement.

Q: How do you assess the success of the latest issuance of the Government Saving Notes?

A: Saving notes are a very specific retail instrument that is tailored towards nonprofessional investors. The Government has been issuing Government Saving Certificates intermittently from 1999 until 2021. In 2023, the issuance of Government Saving Notes resumed, and we are pleased that nonprofessional investors have taken an interest in and actively invested in the Saving Notes.

Q: Lithuanian government debt has been lower than the EU average. Does this fact make issuance noticeably easier?

A: We cannot issue both ways and compare, so we cannot say for sure, but investor work still needs to be done, low debt or not, i.e. we still need to convince investors that we have sound strategies, efficient use of public resources, etc. Maybe this is slightly easier, but very marginally, if at all.

Q: Weak external demand is continuously limiting the growth of the Lithuanian economy. What challenges does that impose on you? Is it affecting the attractiveness of Lithuanian debt issuance?

A: Yes, external demand is an important factor contributing to economic growth in Lithuania. However, we do not see any evidence of this being a limiting factor to debt issuance.

Q: You issued your new 10-year bond via syndication in February. This is earlier in the year than you have typically issued via syndication compared to recent years. Did you view conditions for new issuance as particularly favourable? Does the earlier issuance open the door to perhaps one or even two additional syndications later in the year? Do you have a view on the maturities that you might like to target?

A: 2024 is an election year in Lithuania. We have presidential elections, elections to the European parliament, a referendum, and general elections. This means less issuance windows and more noise in the media. The same is expected regarding the US elections and overall market tone. Therefore, the Treasury is consciously planning for that and frontloading issuance in the international markets.

Q: What are further syndication plans for 2024?

A: We plan for one more syndicated issue in 2024, most likely before the summer break.

Q: Are there any plans to issue bonds in other currencies besides the euro?

A: Not at the moment. The euro is our core currency, and so far, our borrowing needs do not warrant a search for other markets, especially taking into account interest rates.

Q: Lithuania is one of the key supporters of Ukraine. If the US would suddenly stop supporting Ukraine, what implications would that have for the demand of Lithuanian government bonds?

A: Lithuania has been and remains one of the most active supporters of Ukraine. Ensuring predictable and continuous financial and military support to Ukraine is a key strategic goal for Western allies in Europe and beyond. We hope that the US will take the decisions to enable further provision of support to Ukraine. In case this does not happen or takes an extended period of time, any market effect on Lithuanian government bonds (and other government bonds in the region) would in part depend on whether remaining Western allies, including the EU, would fill the funding gap and how long would that take.

Q: What long-term challenges do you see for Lithuanian public finances? Are you concerned about them and the attractiveness of Lithuanian public debt?

A: The challenges are very much the same as in other advanced economies – an ageing society, ensuring sustainable economic growth and public finances over the long-term, etc. The Lithuanian government is putting a lot of effort, including via particular policy initiatives, to enhance economic growth potential and ensure that our public debt remains sustainable and at an appropriate level for a small open economy. Currently, a political debate is also ongoing domestically on additional sustainable revenue sources for further increasing military spending (to 3% GDP and potentially beyond).

Q: Are you satisfied with the current share of foreign demand for Lithuanian government debt?

A: Bigger demand is always a benefit. Currently we assess it as sufficient, but are planning to increase our marketing efforts and work towards a larger investor base.