* Czech FinMin sees high 2010 borrowing, costs to rise
* Will issue more shorter-term debt, in 3-10 year segment
* Public sector gap to hit 5 pct/GDP next year, then dip
By Jana Mlcochova and Jason Hovet
PRAGUE, May 26 (Reuters) - The Czech Republic's 2010
borrowing needs will remain near this year's record high levels
and budgets will stay deep in deficit in the following years,
Finance Minister Eduard Janota told Reuters on Tuesday.
The Czech Republic's small and open economy has been hit
badly by a slump in demand from the euro zone although it has
weathered the downturn better than some other central and east
European states such as Hungary, which needed a $25 billion
foreign aid lifeline.
In an interview, Janota estimated next year's overall
financing need at around 260 billion crowns, provided the
parliament approves his proposal for the 2010 central state
budget, which sees a deficit of 165 billion.
"If I have a deficit of 165 (billion crowns) and if I assume
that some 100 billion will again be refinancing, probably the
calendar will be again somewhere around 260 billion, give or
take," Janota said.
The country needs to roll over about 78 billion in bonds
maturing next year, and it was not clear what other debt needed
repayment.
This year's gross borrowing is likely to hit 280 billion
crowns ($14.66 billion), more than double the planned amount, as
the world economic crisis drives up the central state budget
deficit by cutting revenues and increasing welfare spending.
The Finance Ministry expects the economy to contract by 2.4
percent this year. Janota said: "We count on a drop of 2.3 to
2.4 percent for this year, (but) it can be even 3 percent or
more, nobody knows that now."
Janota, who has worked at the ministry's budget department
for three decades, was picked earlier this month to lead the
ministry in a caretaker government which will quit after an
election in October. His team will however do most of the work
on the 2010 budget draft.
Janota acknowledged that a new 15-year bond was not in high
demand on the market and was too expensive for the government so
the ministry would focus on shorter-term debt, in the 3- to
10-year range.
An inaugural auction of the 5.7 percent coupon bond last
week met weaker demand than previous sales of shorter maturity
bonds, and sold with an average yield of 5.789 percent.
NO PRESSURE FOR NOW, BUT OUTLOOK BLEAK
Janota said the state would still issue bonds worth about
100 billion crowns this year, including up to 10 percent in a
new retail issue for citizens. He would not say whether the
ministry planned another euro-denominated bond this year.
He warned financing the state debt could get more difficult
in the future as many countries turn to markets to cover growing
deficits resulting from stimulus packages and shrinking income.
"We are not under pressure this year and we should have no
problem from the financing point of view," he said.
"In the coming years the situation could worsen ... the
market will be tighter, theoretically it is possible that yields
could rise."
Janota reiterated that the total fiscal gap, which includes
the state budget, various off-budget funds, local government
budgets and the health insurance system, would hit 5 percent
next year.
It should fall to 4.8 percent in 2011 and 4.2 percent in
2012, he said, although this could change with a new government
in place.
The finance ministry will issue a new macroeconomic forecast
in July and Janota said he may have to change the parameters of
the planned 2010 budget should the new forecast be worse.
(Editing by Ruth Pitchford)
