Romania’s government borrowing cost surges to fresh 4-year high above 5.2 pct

Romania’s sovereign 10-year bonds yield, a barometer for the cost of financing in the economy, reached a fresh four years and two month high of 5.26 percent (mid-price or average of the bid and ask prices) on Tuesday, surging from 5.04 percent on Monday, amid growing concerns regarding domestic political tensions and the health of public finances. The Ministry of Finance has delayed the release of 5-month public deficit.

National Bank of Romania (BNR) data show sovereign 10-year bonds yields rose to 5.14/5.38 percent on Tuesday, the highest level since April 7, 2014, from 4.94/5.13 percent on Monday.

Experts say the main drivers behind the rise of bond yields are the concerns about rising political tensions and the state of Romania’s public finances, in a global context characterized by a gradual increase in funding costs.

Since the beginning of 2018, Romania has spent RON 2.5 million more per day due to the increase of interest rates for state loans, according to an analysis conducted by Business Review.

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The Ministry of Finance has delayed the release of 5-month public deficit, which is usually announced on the 25^th of each month, without any explanation.

The latest Finance Ministry data showed that Romania’s consolidated budget ran a deficit of RON 6.05 billion – 0.65 percent of gross domestic product (GDP) – in the first four months of this year, compared with a surplus in April 2017.

Total budget revenues rose by 11.8 percent year-on-year in January-April 2018, but were largely outpaced by expenses, which increased by 22.5 percent, raising concerns about the sustainability of public finances.

Experts are particularly concerned about the rapid increase of government’s interest expenses. Official data show that interest expense rose by 56.2 percent during the first four months of this year, to RON 5.06 billion, from RON 3.24 billion in January-April 2017.

Investors are also concerned about the rising political noise in Romania, following the conviction of the head of the Social Democratic Party (PSD), Liviu Dragnea, to three years and six months in jail for instigating to abuse in office.

Following the sentence, political opposition leaders in Romania call for Dragnea’s resignation, while PSD’s leaders expressed their support for Dragnea.

The opposition has prepared a no confidence motion against the current government, which has been read on Monday in the Parliament.

MPs will cast their vote on the motion on Wednesday, but it is not expected to be successful as the opposition won’t be able to gather enough votes, unless Dragnea’s allies decide to turn against him. The motion has been signed by 152 MPs, but it needs 233 votes in order to pass.

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