Romania’s government borrowing cost surges to 7-month high

Sorin Melenciuc 28/01/2019 | 13:31

Romania’s sovereign 10-year bonds yield, a barometer for the cost of financing in the economy, reached a 7-month high of 5.17 percent (mid-price or average of the bid and ask prices) on Monday, surging from 5.09 percent on Friday, amid growing concerns regarding the health of public finances. The Ministry of Finance has not yet released a budget project for 2019 and many experts say it has no money to finance its soaring spending on public servants’ wages and pensions.

National Bank of Romania (BNR) data show that sovereign 10-year bonds yields rose to 5.04/5.30 percent on Monday, the highest level since June 29, 2018, from 4.97/5.21 percent on Friday.

Experts say the main drivers behind the rise of bond yields are the concerns regarding the state of Romania’s public finances and are particularly concerned about the rapid increase of government’s interest expenses.

Official data show that interest expense rose by 27.8 percent last year, to RON 12.9 billion, from RON 10.1 billion in 2017.

Higher deficits can make it more difficult for the Romanian government to raise funds in order to finance the public debt.

On Monday, a tender for government bonds is seen with skepticism by experts.

“Today the Ministry of Finance plans to sell RON400 million in Sep-2031 bonds. This amount was not easy to sell even in better times. We expect some partial allocation towards the higher end of the secondary market,” ING Bank analysts said on Monday, in a research note.

Romania is already EU’s member state which pays the highest interest rates for its debt.

In fact, many experts suggest that the Romanian Finance Ministry is beginning to feel the consequences of its own measures as banks and other investors are showing lower interest in buying sovereign bonds and demanding higher interest rates.

In January, almost all tenders for T-bills and sovereign bonds failed as investors showed little interest to finance the Romanian government.

The Finance Ministry data showed that Romania’s general consolidated budget, which includes fiscal and social budgets of the government, registered for the entire year 2018 a deficit of RON 27.3 billion (EUR 5.9 billion), or 2.88 percent of estimated GDP, un 12.5 percent compared with 2017 as soaring expenses overshadows revenue increase.

Running out of revenue sources, the government has recently introduced a tax on bank assets of 0.3 percent from January 1st, 2019, and capped the retail and corporate gas price at RON 68/Mwh.

The government also imposed special taxes of 2 percent of turnover on energy firms and 3 percent on telecom companies.

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