BR Analysis. Romanian Finance Ministry in search of alternative lenders after hitting its main creditors

Sorin Melenciuc 04/02/2019 | 12:04

The Romanian Ministry of Finance searches alternative lenders to finance its soaring social spending after it severely hit its traditional creditors, the banks and the private pensions funds, by imposing them new taxes, capital needs and other measures.

Running out of revenue sources, the government has recently introduced a tax on bank assets of 0.3 percent from January 1st, 2019, and it imposed to the seven Pillar II private pensions managers in Romania to increase their capital by RON 3.55 billion (EUR 760 million) until the end of this year in order to continue their activities.

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

Banks and private pensions funds are the main lenders of the government and have reacted to the new measures by showing little interest in borrowing money to the Ministry of Finance since the beginning of this year.

In January, the Ministry of Finance wanted to borrow almost RON 4 billion from the market but took only RON 1.4 billion from investors at higher interest rates.

Given its increasing difficulties to find creditors, the Ministry of Finance reacted by trying to defy investors and hasn’t released a issuance calendar for February.

Moreover, the Romanian Finance minister Eugen Teodorovici has claimed last week that he has ordered to the Treasury to stop borrowing money from banks.

The minister said that the government has enough money in its Treasury buffer to finance its needs for at least 6 months, a move that many analysts have characterized as being a bluff.

The second move was the reopening of a government bonds issuance, called Tezaur bonds, available only for individual investors, offering interest rates of 4-5 percent, higher than those paid by banks for households’ savings.

However, the move could be a risky one in a moment when the Romanian currency is depreciating and its attraction for savings is fading away.

In search of new lenders, the Ministry of Finance shows first signs of spending difficulties as the Romanian government has not yet a budget approved by the Parliament and in place.

“We still expect the Ministry of Finance to step up its monthly spending which should lead to lower cash rates but apparently the primary market issues are affecting the timing of spending as well,” ING Bank analysts pointed out in a short note released on Monday.

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