Romania’s public debt, including state guarantees, increased by almost RON3.2bn (0.8% m/m) in February to RON396.1bn (EUR83.5bn) at the end of the month, according to finance ministry data. Yet, state debt dropped by RON4.6bn (1.2% YTD), as the government’s borrowing was weak at the beginning of 2019. The monthly rise was mainly sustained by more than a RON3bn increase of direct debt of the central administration, mostly to private banks and others (up by about RON3.2bn or 1.0% m/m in February). Unlike in 2018, debt increase to local banks and others was no longer fueled by local bond holders, to which the state diminished its debt by more than RON3bn m/m in February. That was due to both, a big redemption and weak borrowing.
Since the government has not drawn any loan from IFIs in February, debt growth was probably on the back of loans from the General Account of the Treasury (CGST), which jumped by almost RON6.4bn m/m in February. This indicates that the authorities heavily used the treasury’s financial buffer, facing difficulties in domestic placement of state securities due to the bank tax ambiguity. However, total loans from the CGST remained below the level recorded at end-2018 (RON53.8bn). We note that the domestic bond issuance revived somewhat in March, after the government adjusted the controversial bank tax. Thus, we expect loans from the CGST to be partly repaid, which refills the financial buffer.
Overall, the debt-to-GDP ratio increased slightly to 38.7% at end-February from 38.4% a month earlier. The largest share in state debt was represented by domestic debt (59.6%). Romania’s public debt in ESA terms was 34.5% of GDP at end-February, also down from 35.0% at end-2018. Net borrowing exceeded RON5bn in January-February (6.9% of financing needs), out of which about RON4.9bn was from the local market. The finance ministry estimated RON72.4bn financing needs in 2019, more than RON71.3bn in 2018. However, the ratio of financing needs to GDP is lower, at 7.1% this year, over a higher projected nominal GDP. The amount should cover RON44.2bn debt repayments and RON28.2bn that should cover the targeted 2.8%-of-GDP budget deficit.