GOVERNMENT DEBT MANAGEMENT IN LITHUANIA Presented by Audrius Želionis, Director of the State Treasury Department of the Ministry of Finance Vilnius, June 2011

ORGANISATIONAL STRUCTURE AND LEGAL FRAMEWORK The organizational structure of the Government debt management : The Ministry of Finance borrows on behalf of the Government and manages its debt The State Treasury department of the Ministry of Finance is the responsible unit within the Ministry Borrowing, risk management and accounting procedures are strictly separated by establishing front office, middle office and back office in the State Treasury Department Legal environment and control: Law on State Debt – set of borrowing purposes, borrowing procedures, etc. Law on State Budget of appropriate year – set of limits related to the net change in debt liabilities and guarantees Government’s Medium Term Debt and Borrowing Strategy – set of debt risk limits, medium-term borrowing and debt management goals Accountability – report submitted to the Parliament 2

CURRENT DEBT MANAGEMENT STRATEGY Debt management objectives Maintaining acceptable interest rate, refinancing and exchange rate risks Increasing liquidity of the Government securities Effectively managing the public financial resources Developing measures to reduce refinancing risk by accumulating resources for significant outstanding debt repayments or using other techniques Eliminating foreign exchange risk by fully hedging the US$-denominated bond issuances into EUR Risk limits Limit name Limit As at 31 March 2011 Residual short-term debt of total debt < 25% 5.5% Weighted average term to maturity >4 years 5.7 years Macaulay duration 2,5-5 years 3.8 years Floating rate debt of total debt < 15% 2.6% Guaranteed debt of GDP 7% 1.2% Debt level control The set of limits for municipalities debt and borrowing (total debt, net borrowing, guaranteed debt limits) Borrowing of Social funds (Sodra) – only with the permission of the Ministry of Finance 3

LITHUANIA WAS, REMAINS AND WILL BE VISIBLE IN CAPITAL MARKETS Lithuania’s benchmark bond issuance history 2002-2011 First bond issue in foreign capital markets was in 1995 Since 2002 the Government regularly issued Eurobonds that resulted in three euro denominated benchmark Eurobonds (EUR 1 bn each) maturing in 2012, 2013 and 2016 After the market crash in 2008 and the financial turmoil in 2009, the Government broadened its investor base by issuing US dollar denominated Eurobonds The Government is an active participant in the domestic market issuing bonds and Treasury bills on regular basis, as well as organizing retail sale of savings notes Market crash after Lehman collapse 4

GOVERNMENT’S BORROWING INSTRUMENTS USED IN VARIOUS TIMES (LTL mill) Market crash after Lehman Brothers default Market turmoil Sovereigns debt crisis Relatively stable market environment 5

DEBT LEVEL AND KEY BORROWING REQUIREMENT DRIVERS General Government debt (% of GDP) General government deficit, ESA’95 (% of GDP) Government borrowing requirements Central Government debt repayment schedule, LTL mill Source: MoF, Convergence Programme 2011 6

LITHUANIA’S DEBT LEVEL IN THE EU CONTEXT General Government debt in 2010 (% of GDP) Lithuania’s General Government debt level is the 6th lowest among EU countries Source: MoF, Eurostat, Convergence Programme 2011 7

CENTRAL GOVERNMENT DEBT STUCTURE (31 March 2011) Debt by instruments Debt by creditors Domestic securities by residual maturity Share of foreign vs. domestic debt 8

SIGNS OF MARKET CONFIDENCE Sources: Bloomberg, Ministry of Finance, The Depository Trust & Clearing Corporation 9

DOMESTIC MARKET DEVELOPMENTS Vilibor Vilibor 10

MAIN DEBT MANAGEMENT OBJECTIVES IN 2011-2014 Focus on increasing the residual maturity of the domestic debt to more than 2 years Retaining domestic debt share not lower than 20% of the total Central Government debt and aiming to increase it to 25% Reducing the refinancing risk of the Eurobond redemptions in 2012 and 2013 Further developing the domestic Government’s securities market 11

LONG TERM CREDIT RATINGS Country Moody’s Standard & Poor’s Fitch Lithuania Baa1 BBB BBB* Latvia Baa3 BB+* BBB-* Estonia A1 A* A Hungary Baa3** BBB-** Czech Republic A+* Slovakia A+ Poland A2 A- * - positive outlook, ** - negative outlook 12

Thank you!