Transcript: Interview with Head of Estonia’s State Treasury Department

19 May 2025

By Marta Vilar – MADRID (Econostream) – Following is the full transcript of the interview conducted by Econostream on 19 May 2025 with Janno Luurmees, Head of Estonia’s State Treasury Department.

Q: In March you issued €250 million in Treasury bills. How did that go?

A: The auction was well received, with strong demand and competitive pricing. We issued 6- and 12-month T-bills in the total amount of €250 million. The average interest rates were 2.266% and 2.220%. It confirmed continued investor confidence in Estonia.

Q: When do you expect to deliver the next auction?

A: We anticipate another Treasury bill auction in the second half of the year, depending on liquidity needs. Our issuance calendar is flexible by design, which allows us to respond to both market conditions and updated fiscal requirements.

Q: What should we expect from you in terms of issuance for the rest of the year?

A: Short-term instruments will remain central to our funding operations in the near future. The decision to increase defence expenditure may lead to somewhat higher issuance volumes in the second half of 2025, but the overall strategy remains prudent and adaptive.

Q: Should we expect you to issue a Eurobond some time in 2025?

A: There is currently no immediate need, but the higher defence-related expenditure could bring long-term issuance back into consideration. We may also pre-finance part of the 2026 budget if market conditions are favourable.

Q: Estonia has managed to lower its fiscal deficit significantly in 2024, to 1.7% from 3.1% in 2023. What impact did this have on your cost of funding? And on demand?

A: As we have not issued any long-term bonds this year, it's difficult to draw conclusions about the direct impact on demand. That said, we monitor closely the bond offerings of other countries in the region and expect that our cost of funding generally moves in the same direction.

Q: Is Estonia now in the clear after the Eesti Pank’s warning last year about a potential debt spiral given the government’s fiscal policy?

A: The lower-than-forecasted deficit in 2024 was unexpected, but it has certainly helped the fiscal picture. While the debt level will rise due to increased defence spending, it will remain low by international standards. We are far from any kind of debt spiral.

Q: Back then, the bank was also worried about the burden of interest payments. Is that still a concern given your current strategy? How are you planning to deal with this?

A: Interest payments are increasing, as expected, but will still remain low in both absolute and relative terms. We maintain a flexible approach to funding and are open to issuing long-term debt when there is solid market demand in that segment.

Q: A few weeks ago, you said that, according to the current forecast, you may not need to issue long-term bonds this year at all. What would make you change your mind?

A: The new defence spending commitments could change our financing needs. Additionally, if markets are favourable, we may consider pre-financing part of the 2026 budget. Our approach remains data-driven and flexible.

Q: If you don’t issue any Eurobonds this year, how much do you expect to issue via auctions throughout the year?

A: We aim to keep the outstanding stock of Treasury bills broadly at current levels, subject to market conditions and actual cash flow needs. This provides sufficient liquidity coverage while avoiding unnecessary refinancing risk.

Q: Would an increase in defence spending be financed using any particular type of issuance? Would you rather do it with a particular instrument, like others are doing focusing on retail bonds, or any particular tenor?

A: We do not earmark financing by sector. The choice of instrument will depend on efficiency, cost and market conditions. While defence spending is clearly a key fiscal driver, we will use the most appropriate mix of funding tools available at the time.

Q: Speaking of retail bonds, in our interview with you last year you said you were ready to test the local market in late 2024. How did that go and where do plans for retail issuance stand currently?

A: The transaction went well. We issued a €200 million, 2-year bond that was four times oversubscribed. About 15% of the allocation went to retail investors. This share could have been higher, but as a new instrument for many local participants, it will take time to build familiarity. The initiative was widely welcomed, and we hope that such instruments contribute to the development of the local capital market. There are currently no decisions made regarding future retail issuances. In general, we would prefer not to issue separate retail bonds but rather make regular government bonds more easily — and at a lower cost — accessible to retail investors.

Q: What are your plans with regards to green bonds?

A: We have no plans to issue green bonds at this stage. Our overall issuance volume is relatively small, and splitting already limited liquidity between different types of instruments would not be efficient. That said, we remain fully committed to environmental targets and continue to invest in projects that support them. We are also preparing to add more ESG-related information to our investor webpage and presentation materials in the near future.

Q: In Q1, both Moody's and Fitch affirmed Estonia's sovereign rating at its current level with a stable outlook. When do you expect an upgrade in terms of rating or outlook?

A: I cannot speculate on ratings. Our focus is on maintaining sound fundamentals and fiscal transparency. We trust that rating agencies will reflect progress in their assessments over time.

Q: Has the recent market turmoil stemming from the US bond market had any impact on your issuance or on your plans?

A: We monitor global conditions closely. So far, volatility in US markets has not had a material impact on our plans. Our limited financing needs give us the flexibility to avoid issuing during periods of market stress.

Q: Given your proximity to Russia, do the current developments with respect to the war, be it a potential ceasefire, have any impact on your issuance plans and demand?

A: Geopolitical risk is an ever-present factor in our region, and recent developments only reinforce that. However, investors understand Estonia’s security context and value our euro area membership, NATO membership, and sound fiscal management. Demand remains solid, and our strategy continues to be grounded in prudence and flexibility.