BNR analysis: Radiography of investments in Romania – under what conditions capital accumulation occurs
Foreign direct investment (FDI) and expectations regarding the demand have a positive influence on capital accumulation in Romania, while uncertainties play an inhibiting role, especially… Mai mult›
Romania ranks second to last among EU states in terms of national gross minimum wage, according to data published by Eurostat, at a level… Mai mult›
Some charts: Perfect chaos in Romanian budgets. A 4-year analysis of difference between law and implementation
Although at first glance it is difficult to draft them, Romania’s public budgets are, in fact, a series of indicators and lists of revenues and… Mai mult›
Tax authority’s “armed arm” was handed over to Prognosis Commission. How strongest governmental structure looks?
ANAF’s new president, Mihaela Triculescu, handed over to the National Commission for Strategy and Prognosis – CNSP the power to decide what companies are to… Mai mult›
Romania is clearly distinguishing itself within the EU in terms of current account deficit evolution, with the second highest current account deficit in 2017 and… Mai mult›
de Marin Pana , 2.7.2018
Government debt service for 2019 will surely exceed the 2018 level, according to the projection made by the Ministry of Finance based on the debt already contracted and the exchange rates on 31.03.2018.
It would be RON 53,635.5 million compared to RON 53,580.5 million this year and compared to less than RON 50 billion in 2017.
The level of capital ratios (the amounts to be reimbursed during the year) will increase from RON 42,456.3 million to RON 43,599.0 million, while the money paid on interests and fees related to the debt appears to decrease from RON 11,124.2 million to RON 10,036.5 million (to which, of course, extra amounts will be added in the coming months).
- Public debt service – projection on 2016 – 2019
- Public debt service
- Capital rates
- Interests and fees
- Domestic public debt service
- Capital rates
- Interests and fees
- Foreign public debt service
- Capital rates
- Interests and fees
In fact, the projection is made by the Ministry of Finance by 2024, but the amounts presented are even less relevant as the term is farther and it is not known how contracting new loans will evolve, which will be their exact way of structuring between the domestic and foreign market, plus the uncertainties related to the exchange rate (where the National Commission for Strategy and Prognosis sees, arguably, a decline to 4.58 lei/euro by 2024).
It is important to note that in 2017 we benefited from a local minimum in payment obligations in the public debt account and interest and fees rates were maintained below RON 10 billion. Which will not happen again in 2018 and 2019 and will put pressure on public finances.
At the same time, there is a significant increase in interest and fees taking shape after they stagnated in 2017 to 2016 levels.
At the local level, the problem is located at their level, and at the external level, significantly higher capital rates will have to be “rolled over” this year (over 70% higher than in the previous year).
We recall that “rolling over” implies contracting loans equivalent to the outstanding amounts in order to pay them and, basically, moving the repayment term in the future, but at a new market interest, the one valid at the moment when the new loan was contracted.
That is why it would be essential for the payments that Romania will assume for the next years that this interest (which depends on the perception of the capital markets) is as small as possible, anyway below the level applied when we contracted the previous loans, which now must be “rolled over”. Otherwise, the payment burden is likely to increase, even in the absence of an increase in the credit stock (which is not the case today).
- Evolution of public debt according to the EU methodology
- % of GDP
- * calculated according to the EU methodology, by the ratio between the debt and the last four quarterly GDP values available
As we can see in the table, the public debt trend is increasing in absolute terms but decreasing as a share of GDP.
It is important for the increase in the debt stock to maintain well below the economic growth rate in order to offset even the systematic increase (for reasons that are not necessarily imputable to us, but it would not hurt for us to be cautious) of the interest at which we can borrow money from the capital markets.
Interestingly, according to data published by Eurostat for 2017, on the structure of public debt of all EU member states, contrary to the vast majority of tables and graphs that appear regularly, Romania is almost exactly in the middle of the list by the way the debt is structured between residents and non- residents (approximately equal) and is a neighbour in this ranking with the Czech Republic, Germany and France.
- Short-term debt
- Long and mid-term debt
- DTS (%)
- DTLM (%)
At the same time, the evolution in debt structuring by maturities shows an accentuated increase in the share of medium- and long-term debt.
Which is a good thing for the allocation of the pressure on the budget over time, but at the same time implies a greater responsibility for the decisions taken, with consequences that will manifest for a long time.
- Average maturity of total debt
- Maturity of bonds issued in local market
- Average maturity of Eurobonds
For now, as we benefited both from the economic growth and an extension of payment deadlines, we have positioned around 1.2% of GDP in recent years, money that we need to have in the budget just for interest and fees on public debt.But the situation may change relatively quickly, precisely because we will not be able to preserve indefinitely this fast pace of maturities’ increase.
It can already be noticed the capping of the average term of the securities issued on the domestic market and even a slight decrease in the maturity of Eurobonds. That is why we should be very careful with the new loans and especially how we use the money because the price paid later should justify the decision to borrow.
Lăsați un comentariu
"Iceberg" operation: ANAF announces that it selected 487 companies which are to be audited based on risk analysis
Virgil Pirvulescu, Vice President of ANAF at PwC Annual Tax Conference The National Agency for Tax Administration (ANAF) has identified 487 large and medium-sized companies… Mai mult›
Commissioner Corina Cretu: There is a risk that Magurele Laser will not be completed during this budget implementation
In the absence of a rapid response from the Romanian Government to the European Commission, there is a risk that Magurele Laser can no longer… Mai mult›
The Presidential Administration announced on Friday that President Klaus Iohannis, "as the head of Romania’s foreign policy decisions and Romania's representative at the external level,… Mai mult›
Further to the message on the impact of OUG 114/2018 transmitted on Thursday to the organizations in the Coalition for Development of Romania (CDR), AmCham… Mai mult›
Finance minister stopped borrowing money from the market. Teodorovici: We have funding resources for minimum six months
Minister of Public Finance (MFP), Eugen Orlando Teodorovici, has ordered to stop borrowing operations on the market because MFF would have all the money needed… Mai mult›
BNR: If we sold foreign currency to defend Romanian leu, as PSD wants, interest rates would explode and ROBOR would go over 5-7 percentage points
The National Bank of Romania wants a "loyal cooperation" with the Ministry of Public Finance, and that involves a prior consultation with the central bank… Mai mult›
The tax on bank assets was not included in the 2019 draft budget, published on Thursday evening by the Ministry of Public Finance (MFP). According… Mai mult›
Eruption on foreign exchange market: Mechanism of spiralling depreciation. Euro - sudden surge to 4,759
The average euro exchange rate, calculated by the National Bank of Romania (BNR), suddenly climbed sharply to a new record level of 4.7569 RON /… Mai mult›
ANAF starts controls at large taxpayers. Mission stated: Combating phenomenon of externalisation of profits
The National Agency for Fiscal Administration has publicly announced the start of the "Iceberg" operation - a large fiscal control action targeting big companies operating… Mai mult›
It becomes increasingly harder for the state to borrow: Finance Ministry has attracted only a quarter of targeted 400 million
The Ministry of Finance (MFP) has only managed to sell five-year government bonds amounted to RON 110 million out of the RON 400 million issued… Mai mult›
The most important bankers in Romania say that the effects of the tax on greed will be very serious and difficult to repair over time.… Mai mult›
Rovinari power plant, part of Complex Energetic Oltenia, closed one of its energy groups on Wednesday night because of the lack of coal, as… Mai mult›
A flow of initiatives against compensatory appeal: 188 of detainees released committed robberies, rapes, crimes
USR will file on Monday a bill on repealing the compensation appeals law, based on which thousands of detainees were released from prison before completing… Mai mult›
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›