SIMILAR ARTICLES

70% of economic growth in first three quarters of 2018, obtained by stocks increase. Foreign exchanges pulled down GDP by 1.6 percentage points

INS recalculated GDP in the third quarter and the first three quarters of the year. Here are the growth data for the Romanian economy, updated… Mai mult

Romanian Leu of 2019: Depreciation rate depends on budget credibility and seriousness

The estimates by economists of most important banks in Romania on the depreciation of the local currency for this year range between 4.73 and 4.77… Mai mult

Romania and energy: Position in European context

Final energy consumption of Romanian industry declined by about 75% between 1990 and 2016, compared to only 25% at the EU level, according to data… Mai mult

Crash signal in foreign trade – export coverage ratio has fallen to 2011 level. And we do not import robots

The trade deficit on November 2018 was EUR 1.567 billion, the second worst monthly performance registered last year. Worryingly, the growth rate of exports compared… Mai mult

Intense M&A activity in 2018 in Romania – Deloitte analysis

The Romanian mergers and acquisitions market reached nearly EUR 2 billion in 2018, according to a Deloitte Romania analysis based on public sources and transactions… Mai mult

Cronicile

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

Mugur Isarescu: "Ordinance weird thing" reduces monetary policy efficiency, which will not help Government

The National Bank of Romania (BNR) will convoke the National Committee for Macro-prudential Supervision, where the Ministry of Finance will be required to clarify the… Mai mult

World Bank lowered prospects on Romania's economic growth for 2019 and 2020

  Romania's economy will record an advance of 3.5% in 2019 and 3.1% in 2020, down one percentage point from June 2018 forecast, according to… Mai mult

State is borrowing at increasingly higher costs - government bond yield reached 5.33% per year

The benchmark government bond yield jumped above the 5% threshold on Thursday. The Ministry of Public Finance (MFP) attracted RON 300 million from banks on… Mai mult

Iasi - Tg.Mures highway disappeared from Large Infrastructure Operational Programme 2021-2027

The Ministry of European Funds has taken out Iasi-Tg. Mures highway project from the Large Infrastructure Operational Programme 2021-2027 and the Ministry of Transport already… Mai mult

Senate postpones discussions on DNA’s request on waiving immunity of Calin Popescu Tariceanu until February 2019

The Senate has decided that it will put to the vote the decision to waive Calin Popescu Tariceanu's immunity only in the spring session, that… Mai mult

Implementation of 5G technology, a multiplication effect in economy of EUR 4.7 billion - announces Sorin Grindeanu (ANCOM)

The National Authority for Management and Regulation in Communications (ANCOM) launched on Wednesday the National Strategy for the Implementation of 5G Technologies in Romania for… Mai mult

FIC: Amendments on Criminal Codes expose business environment to abuses from civil servants

Some of the amendments to the criminal codes will generate mistrust regarding Romanian state's ability to ensure the legality, stability and predictability of business relationships… Mai mult

European Semester / European Commission asks Romania to correct its medium-term structural deficit by 1% of GDP

Minister Eugen Teodorovici is pressured by the EU to reduce the budget deficit After finding that the Government has done nothing to adjust the deviation… Mai mult

Sovereign Fund gets legal base. Details announced by Minister Teodorovici

The Government adopted on Thursday the ordinance that provides for the general framework for the establishment of a Sovereign Fund. Later, after new talks with… Mai mult

Ford is looking for 1,700 employees to produce EcoSport SUV model

The representatives of Ford Craiova met on Wednesday with mayors of 30 localities from Dolj county in order to stimulate the attraction of 1,700 new… Mai mult

Development strategy / Government squeezes even investment money from its own companies: EUR 120 million from only two entities in energy field

Nuclearelectrica (SNN) and Romgaz (SNG) have calculated the additional dividends to be paid to the state after the Ministry of Finance (MFP) sent to the… Mai mult

DNA, officially: Senate President is suspected of having received a USD 800,000 bribe. Case file opened at a request from Austrian judicial authorities

The case file in which the DNA requested the waiving of the Senate President’s immunity was opened at the request of Austrian judicial authorities and… Mai mult

Illegal state aid / European Commission demands Romania to recover EUR 60 million from CE Hunedoara

Romania has to recover illegal state aid worth EUR 60 million granted to Compexul Energetic Hunedoara, announced the European Commission with a statement released on… Mai mult

Ministry of Finance planned loans of RON 4.74 billion in November. Costs are increasing

The Ministry of Public Finance (MFP) intends to borrow in November RON 4.74 billion, 1.4% more than in the previous month, according to the Ministry.… Mai mult