Romania's public debt-to-GDP ratio drops to 48.5% at end-September

The public debt rose to RON 556.4 bln (EUR 112.5 bln) at the end of September, Romania's Ministry of Finance announcedon December 8, just in time for the debt to GDP ratio calculated under ESA terms to drop to 48.5% based on the latest quarterly GDP data released one day earlier.

Calculated a couple of days earlier, the ratio would have slightly exceeded the 50% threshold (50.2%) as an effect of subdued GDP still impacted by the slow economic activity last year.

Although the ministry visibly waited for the statistics office to release Q3 GDP, this is not data manipulation - on the opposite.

In September alone, Romania's public debt increased by RON 6 bln (EUR 1.2 bln) and yet, thanks to a different GDP base, the ratio dropped by 1.2pp from 49.7% at the end of August.

From a broader perspective, the country's public debt rose by nearly RON 56 bln (EUR 9.8 bln including exchange rate effects) in the first nine months of 2021, while the debt-to-GDP ratio edged up by only 1.1pp from 47.4% at the end of 2020.

During 2020, the public debt soared by RON 126 bln (EUR 26 bln) while the debt-to-GDP ratio surged by more than 12pp due to adverse dynamics of the nominal GDP.

It is relevant that the (cash-based) budget deficit in 2020 neared 10% of GDP while it was only 3.8% of GDP in January-September this year.

The wide deficit planned by the Government for Q4, however, will bring the debt to GDP ratio again close to 50%.

As the new ruling coalition promises to stick with a cash deficit target of 5.84% of GDP this year and the nominal GDP will rise, the indebtedness as reflected by the debt to GDP ratio would not rise much over 50% at the end of 2022.

Moody's projects Romania's debt-to-GDP ratio will continue to rise in 2022 and 2023, and peak in 2024 at 56.6% (gross terms) before starting to decline in 2025.

Under a more optimistic scenario (not far from the government's plans), S&P projects a milder trajectory of the public debt to GDP ratio, seen as remaining below 50% in net terms by the end of the forecast period (48.1% in 2024, after peaking at 48.6% in 2023) and not much above 50% in gross terms (52.4% in 2023 and 51.6% in 2024).

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