Romanian Govt. beefs up buffer, but might still need BNR’s support in 2021

The buffer held by Romania's Treasury will rise to 5.5% of GDP, or RON 57.8 billion (EUR 11.9 bln) at the end of this year, according to Profit.ro calculations based on the documents of the third budget revision.

The figure, the highest in the past decade, exceeds the target of four months of public financing needs because the financing needs are estimated at 13.6% of GDP this year and will likely drop in 2021.

The record buffer was boosted by the EUR 2.5 bln Eurobonds issued at the end of November, the EUR 3 bln transferred by the European Commission under the SURE program to finance labor market measures, and the borrowing on the domestic market from banks and households.

However, the country's gross debt will increase from 36.4% of GDP at the end of last year to 47% of GDP at the end of this year. The net debt will rise from 34.6% to 41.5% of GDP.

Finance minister Florin Citu recently commented about the Government building up reserves to finance next year's budget deficit in advance. In its recent update on Romania's sovereign rating, S&P estimates the public-sector financing requirement in 2021 will be about 10% of GDP.

It expects that most of the resources will come from the domestic market. In this regard, S&P anticipates that the domestic banking sector will support the Government's financing needs.

Still, the rating agency expects the banks' capacity to digest the Government's total financing needs to be constrained.

The banking sector's existing exposure to the Government is already substantial at more than 20% of its assets.

Given the magnitude of the Government's financing need in 2021, S&P expects Romania's National Bank (BNR) may again need to backstop financing in 2021.

The BNR deployed and executed a government bond purchasing program in 2020 that provided liquidity to the market and settled the erratic domestic market.

At present, the BNR holds RON 4.8 bln (close to EUR 1 bln) of government securities, representing 1% of the total government commercial debt and 0.5% of GDP, on its balance sheet.

(Photo: Octav Ganea/ Inquam Photos)