Labour cost: steepest and largest increase in the EU. And mostly concentrated on non-business sector
Romania recorded in the first quarter of 2018 the highest labour cost increase among all EU member states, according to data released by Eurostat. With… Mai mult›
Company financing: Firms’ aversion to credit – at high levels. Most favourite banking product – account overdraft
The rise in interest rates and fees is becoming increasingly worrying for companies and maintains companies’ aversion to banking lending at high levels, according to… Mai mult›
“Everything in One Hand” project continues: Law which pushes Court of Auditors beneath Administration’s feet – adopted
The Senate adopted on Thursday the draft amending Law 94/1992 on the organization and functioning of the Court of Auditors, which contains amendments that could… Mai mult›
Government is hardly competing with private economy on banks’ money. Which are satisfied: less work, lower risks
The volume of government credit has increased about 10 times over the last 10 years, and the share in total banking investment in Romania… Mai mult›
A (new) paradox: Public debt decreases as a share of GDP – cost increases with interest to what we borrow. Remarks
de Marin Pana , 18.6.2018
Although medium- and long-term foreign debt (DETML) has declined steadily over the last four years related to GDP, the amount paid for this debt has continued to increase, including as a percentage of GDP.
The budget effort for the first four months of 2018 was RON 1.8 billion (or 56%) higher than in the first four months of 2017.
The average interest rate on long-term government loans used for convergence purposes in the first four months of 2018 rose to 4.43%/year, while it was 3.87% in the first four months of 2017, a significantly lower value.
We remind that, for the most part, loans already contracted are not effectively paid but “rolled”, which means new loans with an equivalent value are contracted. But this is done at the market rate valid at that time, and interest will continue to be paid. That means a different interest is paid for the same amount borrowed.
Of course, not the entire foreign debt stock has to be “updated” with the related interest, but the intersection between the debt share of GDP with the average interest rate over a period of time long enough to provide a solid picture of the situation, offers the possibility to draw pertinent conclusions regarding the opportunity decisions in contracting new debts.
- Evolution of interest costs for the average market interest in Romania
- DETML, end of the previous year
- Average interest – 4 months
- Effect on public budget
Two years ago we benefited from relatively low interest rates at which we could extend the maturity of already contracted loans or take additional loans.
The only country for which interest rates are rising
Here’s what the evolution of the interest rate on long-term government loans used for convergence purposes shows over the last 20 months:
- Evolution of interest rate on long-term government loans used for convergence purposes, over the last 20 months
- Month Sep16 Oct16 Nov16 Dec16 Jan17 Feb17 Mar17 Apr17 May17 Jun17
- Interest rate
- Interest rate
Unfortunately, we are the only country in the former Socialist bloc that has joined the EU where the situation has worsened compared to April 2017, with the exception of the Czech Republic (which at that time benefited from an exceptional interest rate of less than one percentage point and still has the lowest value, except for Bulgaria, which has the currency indexed to the euro).
- Interest rates on long term for convergence purposes
- Country Apr17 Dec17 Jan18 Feb18 Mar18 Apr18 2018 average
In fact, the Czech Republic has made an even more drastic adjustment than us on the public debt share of GDP, from 42.2% in 2014 to 34.6% in 2017, that is, from a value above ours to a level slightly below us, even though, in the terms presented above, it would pay interest of only 0.61% of GDP.
In order to clarify where the inspiration came from, we present how Germany’s foreign debt evolution shows from 2014 onwards, according to official Eurostat data:
- Germany’s public debt
- Public debt (% of GDP)
This is to say that the average interest rate on amounts borrowed by the German state was much more advantageous than in the states presented above. Starting from just 0.22% in April 2017, it rose to 0.54% as an average of the first four months of 2018. Moreover, the target of meeting the 60% threshold imposed at Maastricht seems quite clear.Even countries that could have afforded debt increases as a share of GDP (against a declining trend in interest rates) did not venture into this possibility. Not only those that were above 60%, such as Croatia (from 84% in 2014 to 78% in 2017) or Hungary (from 76.6% to 73.6%) but even the Bulgarian neighbours (from 27.0% to 25.4%). The marginal exception is Poland (which started from 50.3% in 2014 went up to 54.2% in 2016 but then adjusted to 50.6% in 2017).
Therefore, given the developments in international markets, in order to limit a significant increase in interest payment obligations, we should somewhat pay more attention to countries from the region and to those that set the tone in the EU. That is, we should focus more on European non-reimbursable funds and maintain the trend of adjusting the share of foreign debt in GDP.
Lăsați un comentariu
Fitch confirms Romania's rating at BBB- but warns: fiscal loosening is risky for macroeconomic stability
Fitch Ratings confirmed on Friday Romania's rating for long-term foreign and local currency debt at BBB-, with a stable outlook, but warned that fiscal loosening… Mai mult›
Finance Minister Eugen Teodorovici said at a press conference held in Bistrita that "a mechanism of this type is in progress”, a mechanism on tax… Mai mult›
AOAR - Economy against new Criminal Code: businessmen denounce excessive protection provided to officials who cause damages to economy
The Businessmen’s Association of Romania (AOAR) asks the ruling coalition to explain the mechanism by which, after changes introduced on Wednesday in the Criminal Code,… Mai mult›
Number of insolvencies increased by 12% in first five months. Suspended activities - plus 31%, dissolutions - plus 59%
The increase in the number of companies and PFAs in insolvency was 11.97% in the first five months of this year, compared to the same… Mai mult›
The investment needs in Romania's transport infrastructure exceed EUR 70 billion, while the available resources by 2030 are EUR 36 billion, according to the Transport… Mai mult›
Liviu Dragnea announces a dictatorship through ordinances: "Correct procedural approach through Parliament is wrong, from the law on investment fund to laws on the judiciary. We will be firmer and more radical"
"We decided to be much firmer and more radical. My way of having a correct procedural approach in the Parliament proved wrong. In the Parliament,… Mai mult›
Deputies adopted a draft law on Wednesday whereby entitlement to social assistance ceases when a job is refused. The decision, Agerpres announced, was taken with… Mai mult›
The National Agency for Employment (ANOFM) grants subsidies of RON 900/month to employers who employ graduates of educational institutions, with contracts of indefinite duration, within… Mai mult›
C.P. Tariceanu, before the heads of Senates from EU: The European Commission has encouraged the parallel state, in Romania it is like in the 50's
Calin Popescu Tariceanu (foto) delivered a very tough speech on Friday, in the Senate, addressed to the European Commission, which he accused of encouraging the… Mai mult›
The National Bank of Romania (BNR) sent to banks for consultation a draft amending Regulation 17/2012, which provides for a consistent lowering of the indebtedness… Mai mult›
Senators adopted on Wednesday the draft for amending the Code of Criminal Procedure, by 74 votes for to 28, against. The bill goes to the… Mai mult›
RBL: Workforce crisis is worse than economic crisis - 3.4 million Romanians have left the country in last 10 years
Migration is one of the most serious problems facing Romania at this time, along with the lack of infrastructure. However, the return of Romanians to… Mai mult›
Romania's economy could grow by 5.1% in 2018, according to the World Bank summer forecast. The estimate has been improved by 0.6 percentage points above… Mai mult›
Ministry of Energy: Natural gas from Black Sea will be exported through Onesti - Isaccea - Negru Voda network
The Ministry of Energy issued for Transgaz the construction permit for the consolidation of the transport system between Onesti (Bacau) and Isaccea (Tulcea) and for… Mai mult›