Need to roll over loans will keep governments under pressure - OECD

Wed Feb 27, 2013 2:01pm EST

* Gross borrowing seen returning to record level

* OECD says 30 pct of debts need refinancing in 3 years

PARIS Feb 27 (Reuters) - The borrowing needs of the mostly developed countries belonging to the OECD will return to record levels this year and they will find it more expensive to raise funds, the organisation said on Wednesday.

Further complicating the task, governments in the Organisation for Economic Co-operation and Development will have to refinance on average 30 percent of their outstanding long-term debt in the next three years.

The group's annual sovereign borrowing outlook showed that, taking redemptions into account, OECD countries will have to borrow $10.9 trillion euros this year, up from 10.8 trillion in 2012 and in line with the record set in 2010.

It estimates the OECD average of long-term interest rates will rise to 4.0 percent this year from 3.2 percent in 2012.

However, the average public deficit in OECD countries is set to fall to 2.3 percent of economic output this year, the lowest level since the global financial crisis in 2008.

"Raising large volumes of funds at lowest cost, with acceptable roll-over risk, remains a great challenge," the OECD said, adding that many public debt managers were working on borrowing over longer periods so that they did not have to return to the markets so often.

Spain and Italy have been notable exceptions. The average maturities of their debt are falling, increasing the risk of problems in renewing these loans, though their burden should be manageable as long as market conditions remain normal, the OECD said.

Efforts to borrow over longer periods risked neutralising the impact of some central banks' efforts to steer interest rates lower through exceptional bond purchases, the OECD warned, citing the United States in particular.

Though the credit ratings of many major sovereign issuers have fallen in recent years, the OECD dismissed concerns about a shortage of the best quality debt. It estimated that 88.8 percent of OECD gross borrowing in 2012 was by AAA or AA-rated issuers, down only slightly from 91 percent in 2011.

It also warned that assessing a borrower's capacity to repay its debts was much more complicated than credit ratings or market-based risk measures reflect.

"We want to raise doubts for those who easily conclude using ratings agencies or spreads: 'look, Italy's sovereign risk has gone up," said Hans Blommestein, head of public debt management at the OECD.

"That is wishy-washy reasoning and people should be more disciplined."

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