Romania seeks to sell bonds abroad in the next two months to finance its budget deficit after failing to sell debt at home three times this month because a political power struggle boosted domestic borrowing costs.
The Finance Ministry is watching the markets on a weekly basis to sell euro-denominated bonds abroad, Deputy Finance Minister Enache Jiru said in a phone interview today. The ministry rejected all bids for the 200 million lei ($56 million) in four-year bonds it had planned to sell today, citing “unacceptable yield offers.”
“With a certain safety margin, I would say we’ll definitely issue Eurobonds in the next two months,” Jiru said. “We’re monitoring markets on a weekly basis and holding constant talks with investors, whose interest is starting to increase.”
Romania has been selling less debt than planned since June because of the political feud between Prime Minister Victor Ponta and suspended President Traian Basescu. The power struggle plunged the currency to a record low, led to higher yields and a failed presidential impeachment referendum.
Basescu will probably return to office next week, after the Constitutional Court reads a ruling invalidating a referendum in Parliament on Aug. 27. He was suspended from office by Ponta’s governing coalition on July 6 on accusations that he overstepped his duties when announcing austerity measures in 2010.
The country rejected bids on Aug. 9, when it had planned to sell 400 million lei in two-year bonds, and on Aug. 20 at an auction for one-year bills. It has raised 1.4 billion lei this month from a planned 2.5 billion lei and about 39 billion lei on the domestic market this year. It borrowed an additional $2.25 billion abroad this year.
“The pressure on domestic yields will probably continue until the political situation returns to normal and until the government sells Eurobonds,” Eugen Sinca a Bucharest-based economist at Banca Comerciala Romana SA, said by phone today. “We think the ministry will issue Eurobonds this autumn to take advantage of the global central banks’ stimulus and a normalization of the domestic political situation.”
The International Monetary Fund urged Romania to bow to market pressure and pay higher yields on government debt to rebuild fiscal buffers, Erik de Vrijer, the head of an IMF mission to the country, said on Aug. 14.
The country needs to avoid rejecting bids at domestic auctions and should try to sell international bonds this year if market conditions allow it and if the government keeps its 5 billion-euro ($6.3 billion) precautionary program with the IMF and the European Union on track, de Vrijer said at the time.
The government has used almost half of its reserves until the end of July from May to fund a budget deficit and repay debt before general elections later this year. The foreign-exchange stockpile shrank to about 3.3 billion euros from 4.9 billion euros at the end of April, the Finance Ministry said on July 25.
“The fact that we rejected the bids doesn’t impact the financing of the budget deficit or that of the public debt,” Jiru also said. “We continue to have an adequate funding buffer and it’s our commitment to preserve it on the short term.”