Macedonia issues '175mn Eurobond

Published: July 13, 2009

On July 1, the republic of Macedonia has issued a fixed-rate €175mn Eurobond with a 9.875% coupon which matures in 2013. The money is said to finance the country’s budget gap and prop up the currency.

At a news conference in Skopje, finance minister Trajko Slaveski said that “the ministry of finance has efficiently secured the funds needed for uninterrupted budget financing”, adding that the deficit target of 2.8% of GDP in 2009 was expected to remain unchanged.

The money from the bond will arrive on July 8, according to Slaveski. Part of the funds will end up with the central bank to bolster foreign exchange reserves and prop up the denar, which both the government and the bank had vowed to keep fixed at 61.4/euro. Slaveski said Macedonia’s public debt stood at €1.7bn or 25.9% of GDP in March.

Fitch Ratings has assigned the Eurobond a ‘BB+’ rating. “Macedonia’s ratings continue to be underpinned by its moderate government debt burden of 21% of GDP at end-2008, below the 'BB'-range median of 35%, a per capita income level that is higher than the 'BB'-range median, its status as an official candidate for European Union membership as well as its net public external creditor status,” says Eral Yilmaz, associate director in Fitch's emerging Europe sovereigns group.

“Nevertheless, the deterioration in the global economic and financial environment could impose a more costly macroeconomic adjustment on the country, given the large current account deficit and fixed exchange-rate regime," Yilmaz states.

Fitch revised the outlooks on Macedonia’s long-term foreign- and local-currency IDRs to negative from stable on May 21, reflecting increased external financing risks. Macedonia’s current account deficit widened to almost 13% of GDP in 2008, from 7.5% in 2007 as the trade deficit worsened.

Fitch is forecasting that Macedonia's current account deficit will narrow only moderately, to 10% of GDP in 2009 due to negative shocks to its terms of trade, remittances and export market growth.