Romania ups MTN ceiling by EUR 7 bln to accommodate 2025 budget financing

The government of Romania took steps to increase the ceiling of the Medium Term Note (MTN) scheme by EUR 7 billion to EUR 75 billion, citing the EUR 8.5 billion financing needs in 2025 but also another EUR 0.6 billion-1.6 billion issues this year and potentially EUR 1 billion in case not all the Resilience Facility money (EUR 2 billion in loans) are disbursed in 2024, according to Ziarul Financiar.

FX bonds may be issued to pre-finance next year’s budget deficit, the Finance Ministry implied.

However, the higher MTN ceiling will also cushion potential fiscal slippage this year - a scenario not mentioned by the government but nevertheless very likely.

“[In order] to cover the foreign financing needs for the year 2024 as well as to create the necessary borrowing capacity for pre-financing the needs related to the year 2025 under the existing favorable market conditions and taking into account the remaining portion of the MTN scheme, it is necessary to increase the MTN scheme ceiling,” the Ministry of Finance argued.

Romania’s government targets a 5%-of-GDP budget deficit this year, but the European Commission expects a 6.9% gap. The 1.9%-of-GDP differential accounts for some EUR 6.6 billion in additional financing (from local and foreign markets) the government may need this year.

Currently, Romania can still use EUR 2.5 billion out of the EUR 68 billion MTN scheme, and two FX bonds worth EUR 1.5 billion mature this year – resulting in a EUR 4 billion borrowing capacity before the EUR 7 billion rise in the MTN ceiling.

The Ministry of Finance stated that the financing plan for 2024 (EUR 8.5 billion-9.5 billion FX bonds, out of which EUR 7.9 billion already issued in January-February) assumed the collection of two loan tranches within the National Resilience Facility PNRR in the estimated amount of EUR 2 billion, as of this date no tranche has been collected.

Lifting the FX bond issuance target by EUR 1 billion to EUR 10.5 billion (implying EUR 2.6 billion new issues by the end of the year) is thus envisaged by the ministry under the scenario of only one of the two tranches under PNRR being disbursed.

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