The government has already signaled that it is in discussions to make an early repayment to European lenders this year, but the official commitment is more conservative, ie to pay between 2020 and 2023 part of the debt whose amortization was planned for 2025. The revelation annual report of the European Stability Mechanism (ESM), released this Thursday.
The institution that succeeded the European Financial Stabilization Fund (EFSF), which along with the European Financial Stabilization Mechanism (EFSM) is one of the European creditors that lent money to Portugal in the financial rescue requested in 2011, also disclosed the amount to be paid up to 2,000 million euros.
The ESM recalled that the strong budgetary performance and positive access to the financial markets enabled Portugal to repay the loan to the International Monetary Fund (IMF) in advance in December 2018 to 'soften' the profile of debt maturities take advantage of the current environment of low rates.
"Portugal also committed itself to an early repayment of the EFSF by up to 2,000 million euros between 2020 and 2023, subject to market conditions and the impact of the evaluation, at that time, of debt sustainability," he said.
Peak to avoid in 2025
In May of this year, DN / Dinheiro Vivo reported, quoting an official source from the Ministry of Finance, that the Government was in discussions at a technical level to assess the timing, timing and amount of a possible early repayment of European loans in 2019. Mario Centeno's office revealed at the time that a preliminary analysis shows that payment of debt to EFSF, whose first maturity occurs in 2025, would bring benefits to the Portuguese public debt.
According to data from the IGCP – Treasury and Public Debt Management Agency, Portuguese debt to European creditors amounts to € 51.63 billion, of which € 27.33 billion to EFSF and € 24.30 billion to EFSM.
Cristina Casalinho, president of IGCP, has already identified that 2021 is a year of "worry" in terms of debt repayments and the Treasury has made exchange operations, buying debt with term in that year and issuing the longer maturities, to soften the impact . In 2021, Portugal has to repay 22.37 billion euros, of which 6.75 billion will go to the EFSM coffers.
The plan to pay EFSF in advance starts from a write-off of 3.5 billion in 2025, indicating that the government sees this year as one of the next "worry" peaks, with total depreciation amounting to 17.24 billion.
The idea, as the ESM said in the annual report, is to seize the momentum to issue debt. Portugal paid an allocation rate of 0.639% on Wednesday to issue 625 million euros in 10-year Treasury Bonds, setting a new historical low by first obtaining a yield below 1% to sell debt benchmark.
In the secondary market, yield of 10-year Portuguese sovereign debt has fallen sharply this year: it trades on Thursday at 0.635%, compared to 1.72% at the beginning of the year.
The economic performance and the rating have contributed to improving investor perceptions of Portuguese OTs. However, external factors have also helped. The trade war has led to fears about the slowdown in global economic growth and forced major central banks to press the 'pause' button on the normalization of monetary policy.
Last week Jerome Powell, chairman of the Federal Reserve, said the US central bank is ready to take appropriate action to sustain the expansion, something investors have interpreted as a sign that a cut in the federal funds rate may be nearby. On Thursday, the European Central Bank said it would keep euro-zone interest rates at record lows for at least another year, and Mario Draghi even admitted that some members of the Board of Governors spoke about a cut in rates.
Spain and Greece have already anticipated
When Portugal reimburses European creditors in advance, it will not be the first of the 'rescued' countries to do so. The ESM reported that Spain in 2018 made three early repayments, totaling 8 billion euros. Before that he had already made six advance payments between 2014 and 2017, paying out total debt of $ 9.3 billion.
According to the ESM, "early repayments give a strong positive signal on the success of the financial assistance program to Spain and also reinforce the position of the ESM as a mature institution that successfully supported countries during the crisis."
"Given the high levels of public debt, a credible momentum stronger reforms are key to reducing vulnerability to adverse shocks, "he said.