Latvia may sell bonds in euros or other currencies in the second half of this year after the country wins approval to adopt Europe’s common currency, Finance Minister Andris Vilks said.
The government anticipates an invitation to join the euro in late June or early July, which may spark credit-rating upgrades, making the country’s debt more attractive to investors, Vilks said in a May 11 interview in Istanbul during the annual meeting of the European Bank of Reconstruction and Development. The government doesn’t “need to hurry” as it has a “large buffer,” he said.
Latvia has transformed its public finances after a recession in 2008 and 2009 prompted a 7.5 billion-euro ($9.7 billion) bailout and widened the budget gap to as much as 9.8 percent of the economy. The country wants to become the 18th member of the euro area and has satisfied conditions related to debt, budget deficit and inflation, according to the government.
“Until now we had U.S. dollar bonds because there was a very strong presence of U.S. investors but probably the time is coming for the option of issuing bonds in euros as well,” Vilks said. “We are going to put more media attention for European investors, also keeping interest in the U.S., but the euro could be quite attractive because rates are plunging.”
The Baltic country may sell as much as 1 billion euros of bonds in the third quarter, Mohammed Kazmi, an emerging-markets strategist at Royal Bank of Scotland Group Plc, wrote in an April 17 report. The bonds may be issued for 10 years and the country is considering sales in Swiss francs or a Nordic currency, according to Kazmi.
The yield on Latvia’s euro bonds maturing in 2018 fell to 1.673 percent at 10:55 a.m. in Riga from 1.677 percent May 10, according to data compiled by Bloomberg. The yield on the country’s dollar notes due 2020 rose to 2.769 percent from 2.746 percent.
Economic growth will accelerate to 3 percent to 4 percent in the second quarter as a pick-up in services, transportation and bank lending help compensate for weaker manufacturing, the minister said.
Gross domestic product grew a preliminary 3.1 percent from a year earlier in the first quarter, the slowest pace in more than two years as manufacturing contracted. The pace of expansion slowed from 5.1 percent in the fourth quarter of 2012 and was less than the 3.7 percent median estimate of seven economists in a Bloomberg survey.
First-half growth should be between 3 percent and 3.5 percent and the government expects expansion to exceed 4 percent in the second half of the year, Vilks said.
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