(Bloomberg) -- Paraguay is preparing to sell a new global bond for $500 million by early July to fund its deficit and push out debt maturities, Deputy Finance Minister Roberto Mernes said in an interview. 

The Finance Ministry is evaluating bond durations out to 12 years with an interest rate of about 6.1%, Mernes said. As much as $70 million of the issuance could be used to refinance a portion of the government’s 2026 bond, he said.  

“We don’t think the conditions are right to do a very large liability management operation,” Mernes said. 

President Mario Abdo Benitez’s government is on track to sell most of the approximately $565 million in global and local bonds authorized under the 2023 budget before President-elect Santiago Pena takes office Aug. 15. That figure doesn’t include securities issued to pay down or refinance public sector debt. Pena will inherit an economy that is expected to grow 4.5% in 2023, and a deficit that is seen ending the year above the legal ceiling of 1.5% of gross domestic product.  

Paraguay has sold almost 802 billion guarani ($111 million) in local bonds year to date after curtailing its 2022 domestic debt program as rising interest rates made cheaper multilateral funding more attractive. The government has returned to the domestic guarani bond market this year to reduce its exposure to foreign currency and floating interest rate debt, Mernes said. 

Paraguay’s domestic debt market is starting to attract foreign money thanks to new rules that allow Paraguayan banks to buy government bonds and hold them in custody on behalf of non-resident investors, who receive structured notes backed by the bonds. Morgan Stanley’s Eaton Vance unit, through Brazil’s Itau Unibanco Holding SA, was the first investor to purchase bonds using that system at a government debt auction June 6.

Other banks and investors have expressed interest in buying bonds under this novel purchasing mechanism, Mernes said.

“The idea is to develop the local market. Our sovereign bonds are 91% in dollars, and we want to diversify that with guaranis,” he said. 

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