Covid-19, Elections, Financial Services

The government is about to discuss the draft on Thursday.

The main purpose of the amendment is to change the principles of the calculation of the interest risk of the state's debt portfolio, the government's communication office said. 

The principles of the management of the interest risk of the state's debt portfolio need to be updated, as in the coming years debt liabilities will surpass the size of the liquidity reserve to a big extent and valid principles cannot be applied in a situation where debt liabilities significantly surpass the size of financial assets. 

For instance, under valid rules, the State Treasury would have to swap the fixed interest of  0.125% on the 10-year bond issued of late for a floating rate based on six-month  Euribor, which is not an economically sensible step in the current low-interest environment.

According to the draft, new principles would be introduced in the management of the interest risk of the state's debt portfolio. Under valid regulations, the interest risk is managed in accordance with a principle whereby the interest risks and currency risks of financial assets and financial liabilities balance off each other.

Under the proposal, a maximum period of fixing of interest of six months will apply to a portion of the debt portfolio equaling 600 miln euros. To the portion of the debt portfolio that exceeds 600 million euros the requirement will apply that the average period of fixing of interest must be at least three years.

The bill also would entitle the State Treasury to conduct transactions at the European Central Bank and the Bank of Estonia without limitations on volumes. The state would be entitled if necessary to open an account with the ECB and keep in it money, without restrictions, which may be necessary for the conduct of large-scale settlements related to the servicing of debt obligations. 

The market value of the liquidity reserve to which restrictions concerning the placement of assets are not applied would be increased from 250 mln to 600 mln euros to ensure the appropriate execution within a limited number of days of the payments of pensions, allowances and wages at the banks conducting settlements for the state.

The market value of the stabilization reserve to which restrictions concerning the placement of assets are not applied meanwhile would be increased from 100 mln to 200 mln euros. In connection with the Riigikogu decision to tap into the reserve if necessary, the State Treasury has started the gradual accumulation of assets into bank accounts, which may result in a contradiction with the requirements of the valid regulation concerning the placement of money. 

Starting from a market value of the liquidity reserve of 600 million euros and a market value of the stabilization reserve of 200 million euros, the requirement will apply that the proportion of the market value of the reserves placed in any single bank must not exceed 20% of the total market value of the respective reserve.