The share of foreigners owning T-bills rose, and the interbank market is much deeper, with more diversified instruments, so that massive capital withdrawals would generate higher vulnerabilities than in 2008, as central bank governor Mugur Isarescu warned recently.
The Government’s total external debt in June hit EUR22.7 billion, edging closer to banks’ EUR23.4 billion debt, in line with central bank data. “The short-term external debt is rising mainly on the government sector amid foreign investors’ mounting demand for Romanian T-bills, in the wake of the higher yields and leu growth outlooks,” said Melania Hancila, chief-economist with Volksbank.
With an 18% growth pace from the late 2010 level, the overall short-term external debt reached EUR21.4 billion in June, accounting for 62% of the central bank’s foreign currency reserves.
The central bank bolstered its reserves, through the loans taken from the IMF, but the weight of short-term external debt rose steadily from the 53% low reached in 2010. However, the percentage is far from the 88% peak registered in November 2008, when foreign analysts warned that should foreign financing halt the central bank would risk using up its reserves if trying to cover foreign currency withdrawals.
Hancila believes it’s much better for the state to borrow as much as it can from abroad, so as to leave internal funding resources at companies’ disposal.
However, amid the rising foreign market volatility there are concerns about Romania’s vulnerability. Amid international turmoil, Romania may witness major capital withdrawals as foreigners’ holdings have increased considerably over the past year.
Hancila believes, though, that Romania is less vulnerable than other EU states as foreigners’ holdings are quite small both on the stock market and on the forex and state bond markets. As long as yields stay high, there will be no debt rollover problems.
The largest part of the short-term external debt still rests with banks, which during the boom years brought funds from their parent companies to fund loan selling domestically. Short-term funding was preferred owing to the very low costs. However, the weight of banks’ debts in the overall short-term external debt sank below 50%.
The trend of banks’ foreign debt is tied to the trend of lending in Romania. Given the relatively low expectations about this year’s lending increase, analysts are not forecasting a significant advance in banks’ external debt for the following period.
Companies’ short-term external debts climbed in June to EUR5.5 billion, up almost EUR900 million, both from 1Q and the end of 2010. The increase comes after in 1Q companies kept their short-term debts almost constant, at EUR4.6 billion.
Companies’ overall external debts at the end of 1h totaled EUR24.6 billion, up from the first quarter, but slightly down from last year.