The decline in borrowing cost came as a result of the inflation drop, improvement of risk perception of Romania and of rising demand for Romanian securities, largely from foreign investors.
A decisive factor for the increase in foreign investors’ appetite in the past year was the inclusion of the Romanian government securities in the international emerging market indexes of JP Morgan and Barclays.
Whereas state paper yields stood at around 10% in 2009, early this year treasury certificates maturing in six and twelve months reached five times lower yields, 2% at the beginning of 2014. The Finance Ministry is now successfully borrowing at about 4% for three years and at some 5% for five to ten-year maturities, almost half of the yields it would have had to pay five years ago.
The decline in yields may be a breath of fresh air for the government, but to banks it means a decline in profits, which lenders cannot recoup from lending.
Yields were not the only ones to go down, the amount borrowed did, too.
Finance Ministry borrowed 48.5 billion lei (EUR11 billion) via bond issues in lei on the domestic market in addition to about EUR3 billion and $1.5 billion via foreign currency government paper issues last year. This is RON10 billion or 17% lower than in 2012.
The government borrowing less showed in the increase in liquidity on the money market, where interest rates fell to all time lows. The Treasury has attracted RON8.5 billion and EUR678.7 million since the beginning of the year. Romania has also raised $2 billion from international markets via two bond issues maturing in ten and thirty years.
Romania’s public funding need is down RON10 billion this year and will go down by another RON14 billion in 2015, partly because of a continued reduction of budget deficit and partly because of the lower borrowing costs and extension of the governmental debt maturity, Budget Minister Liviu Voinea has recently said.
(English version by Loredana Fratila-Cristescu)