Romania’s government borrowing cost hits fresh 4-year high

Romania’s sovereign 10-year bonds yield, a barometer for the cost of financing in the economy, reached a fresh 4-year high of 4.85 percent on Monday, from 4.84 percent at the end of last week, amid growing concerns regarding the health of public finances.

“The yield curve shifted marginally upward on medium-long maturities: the 10-year interest rate with two basis points at 4.84 percent (record high since May 2014),” Banca Transilvania’s analysts said on Monday in a research note.

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

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.

Economists warn higher borrowing cost quickly translates into higher public debt.