According to Minister-delegate for Budget Liviu Voinea, the refinance risk has lowered through the raising of the average maturity for public debt by half a year in the past year.
In order to improve public debt management, the Government plans to introduce a number of policies aimed at supporting benchmark liquid state bonds, refinancing treasury bills with euro-denominated state bonds, and using financial derivatives.
Romania’s funding demands have declined by RON 10 billion in 2014 from 2013 and will further decline by another RON 14 billion in 2015 from 2014, Minister-delegate for Budget Liviu Voinea told a conference on Tuesday organized by the Aspen Institute at the National Bank of Romania (BNR), according to Agerpres.
This development is the result of a narrowing budget deficit and lower costs incurred by government debt, added Voinea. Furthermore, the refinance risk has lowered through the raising of the average maturity for public debt by half a year in the past year, from 3.9 years to 4.4 years, reaching 5.5 years for external debt. “The refinancing risk is dropping. This is very important, especially given current circumstances, when an external shock can emerge at any time,” Voinea said.
Debts becoming due in the past 12 months had a smaller proportion of the total debt, declining from 24 per cent to 19 per cent, and the authorities have set a target of 10 per cent for the coming years, Minister-delegate for Budget also said.
The liquidity ratio of Gov’t bonds has grown from 26 per cent to 59 per cent in the past year, reflecting trust in the Romanian economy. Voinea also stated that Romania’s access to international capital markets is easy and in 2013 Romania borrowed money at historic low yields both in lei and in foreign currency.
For example, yields on one-year loans dropped to 2.9 per cent in December 2013 from 6.2 per cent in December 2012. Voinea pointed out that the Ministry of Finance (MFP) wants to improve public debt management through a series of policies, including support for liquid Gov’t benchmark bonds, refinancing treasury certificates and Gov’t bonds denominated in euro, using financial derivatives and operations on the over-the-counter market for Gov’t bonds.
The legislative framework will be adapted in order to allow for such operations. The Government of Romania is analyzing the opportunity of opening a credit line worth EUR 700-800 M per year from the World Bank (WB) to finance its deficit in the following years, after a Polish model. On a change of topic, Voinea announced the bill draft for the state aid scheme targeting companies that create at least 20 new jobs would be brought to public debate within the following two weeks, and most likely take effect on July 1. “We intend to pay state aids amounting USD 300-350 million per year in 2014-2020 period,” Voinea added.
Fin Min Petrescu: ANAF reform agreed upon with the WB and cash payment plan will carry on
Also attending the event, Ioana Petrescu, Minister of Finance, stated she would continue the projects inherited from her predecessor because she is not one to ruin other people’s work. In this respect, she mentioned the plan to restructure the National Agency for Fiscal Administration (ANAF) agreed upon with the World Bank (WB), which brought Romania USD 1 billion, and the cash payment plan.
“It is a well-known fact that cash payment restrictions can diminish tax evasion, money laundering, and all the adjacent negative operations,” Petrescu explained. In giving these examples, she said the fiscal measures included in the Ponta 3 government plan cannot be implemented unless the collection process becomes more efficient. “As such, it becomes a priority that can be achieved by diminishing tax evasion levels. I am considering a series of measures,” Petrescu had stated prior.
In early February, Prime Minister Victor Ponta had announced that cash payment restrictions and inter-banking restrictions on card transactions would be approved by law through the Parliament. Subsequently, BNR governor Mugur Isarescu criticized these measures, arguing that cash payment restrictions, particularly where land property transactions are concerned, are reminiscent of the old saying, ‘The road to hell is paved with good intentions.’ Supporters of this measure have no knowledge of the high degree of bureaucracy such transactions involve, and yet, they continue to wonder why so many land properties are not being used, Isarescu noted further.
The crisis of investments, the crisis of competitiveness and productivity, and the crisis of unemployment are the main challenges to the financing of the European economies outside the euro area, European Investment Bank (EIB) Vice President Mihai Tanasescu also said.