Romania’s Upcoming Foreign Loan Activities
Romania is set to seek external financing on two additional occasions, at the end of August or the beginning of September, and again in November, according to an interview with the Minister of Finance, Marcel Boloș.
Upcoming Events
Several significant events are scheduled in the coming months:
- September 11: Marathon on the Impact of Taxation on the Economy. Partners: ARB, avocat.ro, CITR
- September 18: Profit.ro e-commerce event – Challenges of Growth in an Increasingly Competitive Market – 5th Edition. Partner: avocat.ro
- September 24: News.ro Event – ROINVEST – 5th Edition. Partners: ARB, avocat.ro, Philip Morris, TeraPlast
- October 7: Profit Energy Forum – 8th Edition. Partners: avocat.ro, Raiffeisen Bank
- November 5: Profit Gala – Stories with Profit… Made in Romania. Partners: ARB, avocat.ro, Garanti BBVA, Raiffeisen Bank, Philip Morris Romania
Before this information was presented, it had been announced much earlier on Profit Insider. By the end of this year, the number of foreign loan activities will reach five, following previous borrowings of 4 billion dollars in January, 4 billion euros in February, and 3.2 billion euros in May.
Fiscal Measures and Budget Rectification
Regarding the possibility of a budget rectification this year, the minister stated that a decision will be made within the Government and the Coalition. However, he emphasized that such a rectification is necessary. If the Government’s reserve fund continues to be utilized for significant expenses arising from salary increases granted this year, a budget rectification will be required.
The gross financing requirement has been announced (alongside the finalization of the 2024 budget) at 181 billion lei, which covers the needs for debt repayments due, as well as the budget deficit estimated at 5% of GDP (87 billion lei). Since the budget deficit is expected to exceed 87 billion lei, the requirement for loans will also increase. Profit.ro recently reported that by the end of July, the Government had borrowed 153.5 billion lei. At the time of the interview, state borrowings had reached 158 billion lei.
“We have announced a gross financing requirement of 181 billion lei for this year, and we have drawn 158 billion lei from the market up to this point. As the budget deficit increases, it is natural to update the gross financing requirements. If we follow the estimates made by the European Commission, we essentially need to reach an initial target of 215 billion lei,” the minister stated.
Future Legislative Changes
The Ministry of Finance intends for changes to the Tax Procedure Code to take effect from October 1.
The European Commission estimates a budget deficit of 6.9% of GDP for Romania this year, which was announced as part of the spring forecast.
Government Budget Forecast and Financing Needs
The European Commission is expected to release a new forecast this autumn. An important factor to consider is that the Commission’s estimates pertain to the budget deficit in ESA terms, while the relevant budget deficit for borrowing needs is assessed in cash terms, as there are differences in how expenditures are recorded.
The higher deficit compared to the initial target of 5% implies greater borrowing needs. Securing such additional amounts from the domestic market, which lacks the scale of the external market, could create some pressures. Consequently, the Ministry of Finance plans to conduct two external bond issues this year.
“In September and November, we have planned two external issuances. We aim to enter the market around the end of August to early September. The gross financing requirement largely depends on the budget deficit,” stated Boloș.
The gross financing requirement was increased multiple times last year. In 2023, the initial borrowing target was set at 160 billion lei, which was subsequently revised to 180 billion lei in October, 200 billion lei in November, and finally 205 billion lei in December. The actual borrowings for 2023 amounted to 203 billion lei.
Government Reserve Fund and Budget Adjustments
The government will continue to utilize the Reserve Fund for a significant portion of expenditures not accounted for in the budget construction at the beginning of the year, but this mechanism will primarily focus on investment expenditures. Last year, the government relied solely on the Reserve Fund and avoided making any budget adjustments, whereas in previous years, two such adjustments typically occurred.
“An adjustment will be necessary because the measures for salary increases have come into effect. Last year, the impact was not as significant, allowing us to work with the Reserve Fund. This year, the impact is considerable, and we are trying to strike a balance between the Reserve Fund for investments and salary expenditures related to increases… We intend to have a budget adjustment. As things progress and we enter the last quarter, we will evaluate personnel expenditures, and at least the necessary funds for covering personnel costs must come from the budget adjustment, while investments will be funded from the Reserve Fund. It greatly depends on what the Prime Minister and the Coalition decide,” Boloș concluded.
