All external debts are contracted on fixed interest rates and the weighted average interest rate on new external debt for 2019 was 1.1 percent, compared to 0.8 percent in 2018. This indicates increased cost of financing of external debt.
The public debt portfolio consists entirely of fixed rate debt according to the Ministry of Finance. Debt to be re-fixed within 1 year remained at 34 percent in 2019 similar to 2018.
This analysis according to the Public Debt Bulletin 2019, included external commercial debt stock, which are all in arrears but have been categorized as due for repayment within one year.
The main indicators used to measure interest rate risk are: (i) the ratio of fixed rate debt to total debt, (ii) the portion of debt that is to be re-fixed in 1 year, and (iii) the average time to re-fixing (ATR).
“Interest rate risk is associated mainly with the domestic debt portfolio where most of the securities are of tenors of 1 year or less. Although all of the domestic debt stock was contracted on fixed interest rate basis, 80.6 percent was in the short term which exposes the portfolio to interest rate risk on maturity.”
The Ministry went further to explain that, due to the short-term nature of domestic debt, 80.6 percent are to be re-fixed in one year, a slight deterioration (in risk terms) from 79.4 percent in 2018.
“The heavy reliance on the issuance of short-term treasury securities to finance the budget indicate some mismatch and underscores the need to lengthen the maturity profile of domestic debt. On the contrary, only 4.5 percent of external debt, excluding the stock of commercial debt, is to be re-fixed within 1 year or 15.6 percent if commercial debt stock is included.”
The average time to re-fixing (ATR), which indicates the weighted average time for all the principal payments in the portfolio to be exposed to a new interest rate, is 9 years for the external debt portfolio (9.5 years in 2018) and 0.9 years for the domestic debt portfolio leading to an average time to re-fixing for the entire portfolio of 7.2 years (7.0 years in 2018).