Source: Romania Gov Data
Romania is a part of the EU but has its own currency and isn’t part of the Euro. This means that it does not have the same degree of oversight of its state debt reporting that other countries in the EU, such as France and Germany have. That gives the Romanian government a little more flexibility when calculating its national debt. However, the government chooses an even more comprehensive debt measure than the requirements placed on all EU countries by the Maastricht Treaty.
The IMF counts “general government debt” when it calculates the national debt of a county. That includes the debts of the central government and all other levels of government in a country. At the end of 2017, the IMF estimated that the gross national debt worked out at 37% of the country’s GDP. At the same time, the IMF put Romania’s net debt to GDP ratio at 28%.
Gross debt just country the money that the governments in a country owe. Net debt deducts all of the financial assets that the government owns.
Thee debt levels are very healthy and give the government of Romania scope to borrow a lot more should the country face a financial crisis.
The chart below shows the general government debt of Romania as recorded by Eurostat. This show that Romania always had a low amount of national debt. However, that debt rose dramatically during the financial crisis of 2008. The stimulus required by the government to counter the effect of the banking liquidity crisis meant that it had to take on debt itself. The effects of those actions rapidly increased Romania’s national debt, which kept rising as a proportion of GDP until 2014.
Since 2014, the Romanian government has managed to bring down the debt as a proportion of GDP. However, the government’s own figures show that the actual debt amount has continued to rise year on year even in recent years when the country’s debt to GDP ratio fell.
Year Amount (Lei millions) Percent 2006 63,340.8 18.3% 2007 82,324.3 19.2% 2008 109,795.1 20.4% 2009 147,329.0 28.0% 2010 194,459.2 36.7% 2011 223,268.0 39.7% 2012 240,842.6 40.5% 2013 267,150.9 41.9% 2014 295,655.5 44.3% 2015 315,933.7 44.3% 2016 339,080.2 44.5% 2017 368,448.9 42.9%
The government’s annual budget deficit, shown in the chart below, became particularly severe in 2009. However, the government still runs a small budget deficit, which adds to the national debt each year.
The reason that the country’s debt to GDP ratio has started to fall is that the growth in GDP now outstrips the rate at which the national debt is increasing.
The central government is responsible for the national debt of Romania and is answerable to the country’s parliament. The government department that is specifically tasked with overseeing the debt is the Ministerul Finanțelor Publice, which is the country’s Public Finance Ministry.
Although the Ministry sets the government’s budget and so decides whether the country will need to take on more debt, it gives the job of raising that debt, making interest payments, and redeeming expired debt instruments to the central bank of Romania.
The Banca Naţională a României calls itself the National Bank of Romania in English. That name is abbreviated to “NBR.”
The NBR is in change of both the primary and secondary markets for Romanian government debt. The “primary market” refers to the Bank’s method for creating new debt instruments and selling them. The “secondary market” is any open trading system where any investor can buy and sell already-existing government securities.
The initial offering of an issue of debt instruments is conducted by auction. Only authorized financial institutions can take part and each has to submit a tender for a part of the issue of debt. Other financial institutions and large-scale investors can get a slice of this initial sale, but only buy getting one of the authorized dealers to act as an agent.
The authorized bidders, called Primary Dealers, often already have buyers lined up before they bid in an auction. When they don’t they place their allocation onto the secondary market to resell them. Thisis how government securities become available for everyone else to buy and sell.
When the government wants to issue bonds in foreign currencies, the NBR deals with a syndicate of banks within the country of that currency and sells the whole issue in one transaction to that group. That syndicate will then float the securities on their local market.
The government has two time horizons for the debt that it needs to raise. These are:
The cut off length in the definition between short-term and long-term is one year. A debt agreement with a duration of one year is defined as long-term, so the longest period that a short-term debt agreement can have is one year minus one day.
The government of Romania uses the Treasury bill format to raise short-term debt. In Romanian, these are called Certificate de Trezorerie. These devices are only ever issued in Romania’s currency, which is the Leu. The bills do not pay interest. However, they are sold at a discount and redeemed at face value.
For long-term financing, the government issues Obligațiuni de Stat, which are bonds. Most of the bonds issued by the Romanian government are denominated in Leu (ISO code RON). However, the government also occasionally issues bonds in Euros and US Dollars.
Romania uses the “benchmark bond” format for its long-term debt. Bonds pay a fixed rate of interest for their duration and are redeemed at full face value on the maturity date. The government has also issued floating-rate bonds both in Leu and in foreign currencies.
What facts should you know about Romania’s national debt?