Latvia’s general government debt was at 40.8% of GDP at the end of 2022, as reported by the State Treasury, stressing that it is still one of the lowest among EU member states.
Additionally, this debt level is below the average among EU member states – 84% of GDP.
The general government debt level is mainly affected by the state debt, which was EUR 16,8 billion at the end of 2022, according to operational data from the State Treasury.
Since the end of 2021 the state debt in Latvia has increased by EUR 1.5 billion.
The State Treasury explains that since 2020 the state debt increase trends have been dictated by the provision of comprehensive support measures to reduce the impact from Covid-19 and the state support measures of 2022 to reduce the rapid energy price growth.
The biggest portion of the state debt – 74% – is composed of bonds released on international financial markets, with additional bond releases regularly offered on the domestic market, as mentioned in the report from the State Treasury.
With higher activity on the initial international financial market, including neighbouring countries’ bond releases, Latvia was able to use the option to attract resources worth EUR 850 million on the 20th of October 2022, releasing Eurobonds with maturity of 15th of March, 2027, fixed interest (coupon) rate of 3.875% per annum and yield of 4.198%..
The deal reached the highest investor demand among Baltic States for state bond emissions in this specific period of time – EUR 2.1 billion, which exceeds the volume of bonds released by 2.5 times. A notable contribution to investor activity in this deal was provided by the option for investors to meet with Latvian representatives remotely and discuss topics related to the country’s national economy, fiscal policy, energy independence and national security.
The State Treasury also notes that by flexibly adapting to the financial market situation, Latvia, like other countries, used the domestic market capacity and support to increase lending volumes at regular state bond auctions in 2022, ensuring investors are able to invest into profitable Latvian state securities.
Borrowing activities were organised in the domestic market using using additional tranches of Latvian Eurobonds in circulation with maturities in 2024, 2025, 2026, 2028, 2029 and 2031. When the geopolitical situation in Europe became tenser, investors’ interest mostly became focused on release of Eurobons with short maturity. In periods when the situation in various markets stabilised, there was also increased interest for bonds with longer maturity.
Last year, the issue of government securities (gross) on the domestic market amounted to EUR 1.195 billion, whereas the redemption of government securities amounted to EUR 622.22 million.
Investors’ demand for government bonds remained high in 2022, allowing the state to attract historically the largest volume of resources and maintain high profitability of various accounts of the State Treasury, as mentioned in the report. In competitive multi-price auctions demand generally exceeded the volume of bonds released by the State Treasury by 2.3 times.
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