SIMILAR ARTICLES

Q2 / Average monthly income per capita in Romania has risen to nearly RON 1,600: Changes in redistribution of family budget

Data published by INS for the second quarter of 2018 show that Romanians’ monthly incomes have reached nearly RON 1,600 per person. They were RON… Mai mult

Current account deficit flickers to red on dashboard

According to the data released by Eurostat, Romania’s current account deficit exceeded, in the second quarter of the year, the threshold of five percentage points… Mai mult

Strategic chemical industry: Romania, on top in import increase and ranking last in EU in terms of increase in exports outside single market

Data published by Eurostat show that Romania recorded the second highest annual growth rate in imports of non-EU chemicals from 2007 to 2017 (13.1% per… Mai mult

Economic growth in the pocket: Current accounts vs. saving accounts – 64% to 4.5%

  Rising incomes have fuelled consumption and, implicitly, the economic growth in recent years, but not the savings. Although a large proportion of the population… Mai mult

Domestic software and IT services market declines, growth will only be based on external market

Total turnover in the IT sector increased by 11 percentage points in 2017 compared to 2016 and exceeded the four billion euro threshold forecasted, according… Mai mult

Financing Romania: How we got apart from Hungary and Poland in terms of loan costs

de Adrian N Ionescu , 23.4.2018

September 2016: The market yield of 10-year Romanian government bonds was 2.97%.

Very good situation: yield was lower by two-hundredths percent (2 basis points, bps) than Hungarian bonds.

Long-term Romanian government loans were only 7 bps more expensive than the Polish ones.

April 2018: The cost of funding by 10-year bonds issued by the Romanian government went up to 4.61% – almost double the one of the Hungarian government, which has declined to 2.44%, according to latest data of Erste Group Research (EGR).

A remarkable evolution was also observed for Bulgarian 10-year bonds, whose yield fell from 2.55% in 2016 to 1.19% now.

Poland, like Romania, borrows at higher costs than in September 2016, but the yield on Polish bonds stopped at 3.07%.

Worse: Romania, the country with the highest economic growth in the EU, is now borrowing at the highest costs in the region, while in September 2016 only the governments of Serbia and Croatia had worse positions on the financial markets.

And we came to this situation in only one year and a half.

Below, the comparison with the yields (in%) registered three years ago:

*

  • Evolution of 10-year state bond yields
  • Date
  • April 2015
  • April 2018

*

The cost of government financing declined in Bulgaria, which is under the rigors of a severe monetary council, and in Hungary, which manages to attract foreign investment despite “illiberal” political messages.

The increases in Poland and the Czech Republic are far less threatening than in Romania.

Evolution of imbalances

The divergent evolution of the Romanian costs of financing compared to the other countries in the region is the expression of differences between macroeconomic (un)balances and, especially between current account, trade and budget deficits.

As early as three years ago, the Romanian Government planned the fiscal relaxation to reach its peak in 2017.

Wide fiscal relaxation – too much and too good can harm,” the BCR report said on April 23, 2015.

The government had then decided, “following an intense one month promotion campaign“, to bring forward the start of a “four-year plan of fiscal relaxation measures which would have been launched in 2016” and announced at the beginning of April 2015 the VAT cut on all food products to 9%, from 24%.

The relaxation seemed encouraged by an inflation forecast of 0.1% for that year (the average of 2015 was going to be -0.6%), but this was rather the effect of the deflationist threat from the rest of the world and the monetary relaxation policy (“free money”), exported by the US and the Eurozone.

Especially under the influence of the external environment, the BNR monetary policy rate had just cut to 2% and it was going to reach, within one month, the historic minimum of 1.75%.

Romania’s current account deficit was only 1.1% of GDP in 2015, the budget deficit was only 0.7%, and the public debt had the lowest share of GDP in the region, 38.4%.

Here are the details:

As early as two years ago, Erste Group Research (EGR) analysts warned that the current account deficit would rise by as much as one percent of GDP if “the monetary relaxation gets out of control.”

And, it is known, fiscal relaxation has become a “revolution,” whose effects, coupled with the effects of wage increases, the Government no longer knows how to mitigate by ordinances, one more urgent than another.

Current account deficit almost tripled.

April 2018 picture is the following:

The big discrepancies between Romanian (un)balances and those in the region were also noted in the very report of BNR administrators submitted to a Senate committee late last month.

Only two days before the BNR report submitted to a Senate committee, cursdeguvernare.ro was quoting EGR data that noted the current account discrepancies:

  • Czech Republic, Hungary and Croatia are credited with current account surpluses (+ 0.9%, + 2.4% and + 2.6%) in the first quarter of 2018
  • Romania with the highest current account deficit rate in the region in 2018, after Serbia (-4.1% of GDP, compared to -5.3% in Serbia).

Now, the threat of an inflation peak rate of 5% in Romania worsens investors’ perspectives who are now less open to granting money, or at higher interest rates, to the Romanian government.

Almost everyone was surprised that BNR postponed the increase of the reference interest rate, while in Poland the first increase could only be applied in 2019, as the inflation is low.

Instead, Poland, Hungary and the Czech Republic surprised with an inflation decrease in March, according to Capital Economics:

  • Inflation decline was the highest in Poland, where it “plunged from 2.5% y-o-y in November to 1.3% in the last month.”
  • In the Czech Republic, it dropped from 2.8% in October to 1.6% y-o-y in February.
  • “Hungarian inflation has shrunk from 2.6% in August to 1.9% in February”.

“Low inflation rates occurred despite the mature phase of the economic cycle in the region,” and the analysts mentioned attribute them to some conjunctural decreases especially in prices of food products and fuel.

Mergeți în homepage ›

Publicat la data de 23.4.2018

Lăsați un comentariu


NEWS

Cluj-Napoca - only city in Romania that receives European funds for innovative projects

Only Cluj-Napoca is among the 22 European cities that will receive financing from the European Regional Development Fund (FEDR) for innovative solutions in addressing urban… Mai mult

Prime Minister Dancila dismissed 13 of 15 civil society representatives from Economic and Social Council. They were blocking legislation that did not gathered all opinions

Prime Minister Viorica Dancila has replaced 13 of the 15 civil society representatives in the Economic and Social Council (CES). Following a decision published on… Mai mult

West Quadrilateral / Four counties joined to directly access European money for major infrastructure projects

From right to left: Gheorghe Falca, Nicolae Robu, Ilie Bolojan. Emil Boc, Mayor of Cluj Napoca, misses Four mayors from the West of the country… Mai mult

Chamber of Deputies / PSD loses UDMR’s support for amending Offshore Law, draft returns to committees for a week

The plenum of the Chamber of Deputies decided on Wednesday to resend the Offshore Law to committees after a seemingly surprising request of UDMR leader… Mai mult

Government amended insolvency law. Guarantees given by Minister Teodorovici

The Government adopted on Thursday the draft Emergency Ordinance for amending and supplementing legislation in the field of insolvency, which provides among other things for… Mai mult

Romania ranked 7th in EU in terms of renewable electricity

Unlike the vast majority of the economic areas, in which we are at the bottom of the European ranking, Romania succeeded to rank 7th by… Mai mult

Resounding failure of PSD lobbying action in Brussels

There are clear signs that the lobbying action launched by the ruling coalition in Brussels in favour of the government in Bucharest will end with… Mai mult

MFP: Romania does not endorse a separate budget for Eurozone and rejects the idea of ​​taxing financial transactions

Romania does not endorse a separate budget for Eurozone and rejects the idea of taxing financial transactions, Minister of Public Finance Eugen Teodorovici said after… Mai mult

Finance Ministry wants to change rules for insolvency: state could also register claims after procedure is launched

Companies’ possibility to avoid paying creditors (and in particular the payment of tax receivables) simply by declaring their insolvency would be drastically limited, according to… Mai mult

Phil Hogan: Swine fever in Romania has an impact on neighbouring countries and EU trade in pigs

Prime Minister Viorica Dancila, European Commissioner Phil Hogan and Agriculture Minister Petre Daea The swine fever epidemics in Romania has an impact on neighbouring countries,… Mai mult

Infrastructure projects lost EUR 41.5 million following budget amendment. In what projects cuts have been made

Despite the assurances that Dancila government is concerned and intensely working on the road infrastructure projects, at the budget amendment the Transport Ministry has cut… Mai mult

European Parliament have decided to adopt in October a resolution on the rule of law in Romania

Leaders of the political groups in the European Parliament have decided to adopt in October a resolution on the rule of law in Romania. The… Mai mult

"Romania's buffers have deteriorated, the country is less prepared for a negative shock" - IMF will reduce economic growth estimate

Romania will be less prepared if the economy is hit by a negative shock, as the structural deficit has been deteriorated - IMF representative for… Mai mult

Premiere: CSAT asks Finance Ministry to amend amendment - session suspended until Government comes with a draft that does not affect budgets of secret services

President Klaus Iohannis suspended on Tuesday the CSAT meeting for discussing the budget amendment, as there was no consensus on the budgets of institutions from… Mai mult