Romania’s public debt to GDP ratio rises by another 2pp in July

Romania's public debt rose by RON 13.5 billion (EUR 2.8 bln, some 1.4% of GDP) in July due to the USD 3.3 billion Eurobond issue.

Combined with a 2% decrease in the nominal GDP calculated over the rolling four quarters, this resulted in a 2pp rise in the public debt to GDP ratio from 40.2% at the end of June to 42.2% one month later.

In absolute terms, the public debt at the end of July was RON 444.4 bln (EUR 91.6 bln), up from RON 373.5 bln (EUR 78.2 bln) in December 2019.

At the end of last year, the public debt to GDP ratio was 35.2%, meaning it rose by 7pp in the first seven months.

The percentage is likely to exceed 45% by the end of 2020, given the nominal GDP is unlikely to rise significantly in nominal terms over the next two quarters (the state forecasting body CNP sees year's GDP at RON 1,058 bln versus RON 1,052 bln in the four quarters ending June) and the high need for public financing.

Assuming a 6% GDP contraction and a 40% rise of the pensions this September, the European Commission projected a 46.2% debt-to-GDP ratio at the end of this year.

Even if the economic slowdown might eventually be milder and the Government managed to tone down the pension hike to 14%, the public indebtedness will likely end in line with the EC's projection.

Crossing the 45% threshold does not trigger fiscal correction measures, but requires a public analysis of the situation, under the national budgetary and fiscal responsibility law.

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