Presidential Decree 254/22, of 24 October, states that the strategy for the next three years aims to guide the Executive to establish more concrete goals and objectives in the context of contracting new financing and to carry out a more prudent management of the cost and risk of the portfolio of debt.
For the success of the strategy, an action plan was defined, which comprises the promotion of the domestic market and the extension of the maturity of the domestic market, favoring the capture of semi-concessional financing [credit in the context of development aid], with the objective of to improve the cost and maturity of debt and active liability management.
In promoting the domestic market and extending the maturity of the domestic market, the document underlines that the change in maturities and remunerations offered to the market was defined, with a view to lengthening the yield curve, restructuring the programming of public debt auctions, implementing a new approach to the payment of arrears and capitalization of public companies and the expansion of the investor base.
Regarding the implementation of a new approach to the payment of arrears and capitalization of public companies, the strategy foresees to carry out a part via 'cash', "in order to mitigate the distortion generated by the payment of arrears, via the issuance of bonds, once that there will be little availability of instruments in the 'backlog' market, forcing banks to channel their efforts in acquiring them, through the public debt primary market or from the secondary market".
The strategy for the next three years adds to the expansion of the investor base that the advances achieved, in terms of the securitized debt market and the actions that are intended to be implemented between 2022-2024, will lead to the creation of a more efficient and liquid market and, consequently, the attraction of new national and foreign investors.
According to the document, Notice no. on the participation of foreign investors in the securitized debt market.
"In terms of the internal market, it is intended to strengthen the approach with insurers and pension funds by demonstrating the advantages and opportunities that the securitized debt market can offer", highlights the document.
As the external debt continues to be the main source of financing for the Public Investment Program (PIP), the strategy considers urgent the need to opt for a combination of instruments that manage to balance the availability and accessibility of financing sources and the degree of cost and risk they represent for the foreign debt portfolio.
In terms of debt strategy, efforts have been made to diversify funding sources and reduce the proportion of commercial debt, giving priority to concessional funding within the existing funding available, with a view to reducing the risks and costs of debt linked to market variables.
Trade credits continue to be the main resources in terms of external financing, given the proportion of the PIP, whose nature includes export components and/or execution by foreign companies.
The deficit in the technical and financial capacity of national companies to carry out projects in specialized sectors and of the national banks to provide the necessary financing for the realization of projects with an intensive volume of capital are also factors that maintain external financing as the main source of financing.
The strategy proposes targets, until 2024, for the refinancing risk, the average time to maturity of 6 to 6.5 years, against the current one of 5.9 years and the debt maturity in one year at an average of 11.7 percent and 12.0 percent of the total debt, different from the current 12.5 percent.
Regarding the cost of debt, a target for the three-year period is the achievement of a weighted average interest rate of 7.1 percent and 7.5 percent against the current 7.7 percent.
Like the previous strategy (2019-2022), this one was also based on a tool developed by the World Bank and the International Monetary Fund (IMF), which helps governments to make decisions about how financing needs can be met at the least possible cost and risk, consistent with the macroeconomic framework and available funding sources.
