Investors have been demanding higher yields from the Romanian state and the interest rates on the short-term loans, of up to one year, have increased 3 to 6 times in the last 12 months due to the higher inflation.

The long-term public debt is also costlier to finance as Romania has been paying the highest interest rates in Central and Eastern Europe (CEE), local Profit.ro reported.

The 5- and 10-year bonds issues by Romania pay higher yields even than those of Serbia, which has a lower rating from international agencies. The yield on Romania’s five-year bonds increased from 2.5% in June 2017 to 4.7% July 2018, while those for ten-year bonds went up from 3.6% to 5.1%. By comparison, Serbia pays under 4% per year for five-year bonds and 4.9% for ten-year bonds.

This reflects Serbia’s improving macroeconomic indicators as the country has reduced its public debt due to budget surplus while Romania’s debt increased due to deficits. Interest rates are also on a downtrend in Serbia while Romania has seen a rise in interest rates due to inflation.

editor@romania-insider.com