March 6, 2012 / 12:10 PM / 5 years ago

UPDATE 1-Austria's fiscal plans won't affect 2012 borrowing -debt head

3 Min Read

* Plan to raise 27-30 bln euros in 2012 still intact-debt office head

* Fiscal package aims to balance budget by 2016

* Auction of 2022 bond top-up goes smoothly (Adds quotes and background)

By Michael Shields

VIENNA, March 6 (Reuters) - Austria's fiscal consolidation programme that aims to balance the budget by 2016 will not alter the country's borrowing plans this year, the head of the national debt office told Reuters.

The government approved and sent to parliament on Tuesday a package of spending curbs and tax hikes aimed at raising nearly 28 billion euros ($37 billion), which officials hope will convince financial markets of Austria's fiscal stability.

Austria has said it intends to issue 20 billion to 24 billion euros worth of bonds in 2012. It plans to boost total borrowing this year via all instruments to 27-30 billion euros from around 21 billion last year.

"In my view there is no need as of today to make changes. The range of 27 to 30 (billion) is still valid," Martha Oberndorfer, head of the Austrian Federal Financing Agency, said in a telephone interview after a successful bond tender.

The government expects the state budget deficit as measured by the European Union's Maastricht criteria to narrow to 3.0 percent of gross domestic product this year. State debt is set to peak at 74.7 percent of GDP in 2013.

To help handle the costs of rescuing ailing lender Volksbanken AG, the volume of the consolidation package rose by more than 1 billion euros from an initial version unveiled in February.

The drive reflects Austria's campaign to put the euro zone debt crisis behind it after Standard & Poor's stripped the country of its AAA rating and assigned it a negative outlook in January.

Moody's has also threatened to downgrade Austria and other European sovereigns.

Ratings agencies have expressed concern about Austria's exposure to its relatively large banking sector, its economic ties with struggling neighbours Hungary and Italy, and wider worries about management of the euro zone debt crisis.

Oberndorfer said Tuesday's auction of a reopened 2022 bond showed that the country remained attractive for investors.

It sold 1 billion euros of the bond at an average yield of 2.89 percent, down half a percentage point since the bond was launched a month and a half ago, Oberndorfer noted.

Austrian 10-year bond spreads have been 100 basis points over benchmark German Bunds of late, which has proven to be an attractive level for buyers, she added.

Austria is also able to place treasury bills with investors at close to zero percent, she said, although it has not been especially active in the money market recently.

Oberndorfer said the European Central Bank's second tender of cheap three-year funds had helped calm markets.

"You certainly have seen that confidence in the government bond market in general and above all for the periphery countries has clearly risen," she said. ($1 = 0.7557 euros) (Editing by Hugh Lawson)

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