Bulgaria plans to issue BGN 900mn (EUR 460.2mn) worth of debt on the domestic market in four auctions in January 2014, according the finance ministry's bond offering calendar for the month. 

The country will auction BGN 400mn worth of six-month T-bills on January 6 and a nine-month tranche of the same amount will be offered for sale on January 27. The finance ministry will also issue BGN 50mn in 10.5-year T-bonds on January 13 and another BGN 50mn in five-year bonds on January 20.

The government's decision to increase the outstanding public debt by as much as 6% (up from BGN 13.9bn at end-Dec, according to IntelliNews calculations) in just one month is prompted by its promise to pay subsidies to agricultural producers in the first month of 2014. Technically, the state could withdraw a part of the sum needed or the whole of it from the fiscal reserve but borrowing for short-term liquidity purposes has proven to be the more politically smooth option. The lowering of the fiscal reserve below its end-year limit of BGN 4.5bn has always been a cause for attacks from the parties in opposition.

In February 2013, the government of Boyko Borissov, leader of CEDB, dismissed Simeon Djankov from the post of finance minister for refusing to tap debt markets to pay agricultural producers early subsidies. Eventually, CEDB issued a BGN 800mn worth of six-month T-bills with an average yield of 1%.

Since then, S&P has downgraded the outlook on Bulgaria's long- and short-term foreign and local currency sovereign credit to negative from stable, while affirming it at BBB/A-2, and Fitch has affirmed the country's long-term local currency rating at 'BBB' with a stable outlook. S&P has noted that Bulgaria's economic recovery has been slow and warned that the chances of lowering the state's sovereign rating within the next two years are at least one-in-three.

Bulgaria plans to borrow a total of BGN 4.4bn this year, of which BGN 3bn the government will try to place on foreign markets and use the proceeds to roll-over maturing debt. The rest will be used to finance the deficit, which is seen at BGN 1.47bn (equal to 1.8% of the projected GDP).