With a budget deficit almost 80% financed from external sources, public investment projects and soaring bills for imports funded with loans that are constantly guaranteed by the State, Romania has come to owe more than 18 billion dollars to its foreign lenders. Of this amount, the loans independently contracted by the private Romanian companies account for about a third, outlining the massive share still held by the State and its companies in the economy.
Romania borrowed more than 3.1 billion dollars from the foreign markets in the first eleven months last year, with maturities exceeding five years. The foreign public debt went up 2.1 billion US dollars, whereas various private companies contracted foreign loans, not secured by the State, worth the equivalent of another billion dollars.
The State and its companies had bigger appetite and better access to foreign funding, as the public debt increased 21 percent, while the non-guaranteed private commercial debt went up almost 18%.
This occurred despite the Finance Ministry's attempt at containing State-secured credits, so that the private foreign debt service should be fully covered by the credit beneficiaries, with no involvement from the state and with the proper consequences in case payments are not made in due time.
The increasing foreign debt, and, implicitly, the growing annual payment service can induce pressures on the forex market by surging demand, reflected in exchange rate rises. Even if the State can schedule payment so as to avoid peaks that could cause market shocks, surprises can still occur in the case of private loans contracted by companies, in the form of conjectural increases of foreign currency demand. In the past two years, the annual service has revolved around 1.7 billion dollars, with interest rates accounting for about 29%.
The short-term debt (one to five years), most likely contracted to finance imports, posted a slight drop in 2003, amounting to 1.6 billion dollars on November 30, 2003.
Last year, the Ministry of Finances relied chiefly on external sources to finance the deficit, although a strategy focusing on domestic financing had been announced in early 2003. As the budget deficit was contained at a low level (only 2.4% of the Gross Domestic Product), and foreign financing was deemed as being cheaper than domestic costs, the share of external financing sources amounted to 77%, with the domestic lenders contributing a mere 23%.
The State borrowed almost 1.6 billion dollars last year, mainly by launching another bond issue on the private capital market, worth 700 million euros and aimed at financing the budget deficit. The 25% surge of the newly-contracted debt (as compared to 2020) was also triggered by the euro's increase against the US dollar.
Despite the mounting foreign public debt, its share in the Gross Domestic Product is actually very low as compared to the situation in the neighbouring countries. This is, in fact, the only convergence criterion that Romania has had no trouble meeting, but it can very well spin out of control, as it has happened in the other CEE countries.
razvan.voican@zf.ro
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