Romania may resume international debt sales in 2007 for the first time in almost four years to fund health care and education after slipping into a fiscal deficit last year, Finance Minister Sebastian Vladescu said.
The government plans to sell as much as €500 million ($658 million) of bonds abroad, the first such sales since June 2003, Vladescu said. It also plans to sell domestic debt, which it hasn't offered since September 2005, he said. „Romania will be present on the international and domestic markets,” Vladescu, said in an interview yesterday in Bucharest. „On December 28 we had the first day after almost three years when our Treasury posted a deficit.” The parliament last month approved spending plans that will push the budget deficit to as much as 2.8% of GDP this year from about 1% at the end of 2006. Prime Minister Calin Tariceanu's government wants the money to boost spending on education, health and agriculture after joining the EU on January 1.
Romania had GDP per capita of 34% of the EU average in 2005, making it the second-poorest EU state after Bulgaria, according to Eurostat data. Bulgaria also joined the EU this week, extending the union to 27 countries. Vladescu had said in the H1 of 2006 that he was looking at possibly selling international bonds and the Finance Ministry repeatedly canceled all its pre-announced quarterly domestic debt sales last year. He declined to elaborate on the maturity or timing of the international bond sale this year, saying „we'll start working with the domestic market and for sure in January and February we'll issue domestic bonds.”
The country last sold €700 million of seven-year international sovereign bonds in June 2003. Current legislation doesn't allow for debt sales if the Treasury posts a surplus in Romania. The Finance Ministry on November 20 revised the budget for a fourth time in 2006, increasing spending by almost €3 billion and turning the country's state budget surplus of 2% of GDP into a deficit of 1% of GDP. The extra spending helped erase old debts at state companies and provide €150 million as additional working capital to state-owned bank Casa de Economii si Consemnatiuni. The ministry on December 27 said in a statement that it plans to sell 8 billion lei ($3.2 billion) of domestic Treasury bills maturing in six and 12 months and bonds with maturities of three, five and 10 years in monthly auctions starting on January 15. Foreign investors are entitled to buy the debt after Romania opened its market prior to joining the EU.
The Romanian lei, which was the world best-performing currency both against the euro and the dollar for most of 2006, gained 1% against the euro and 1.5% against the dollar after the ministry announced the sales. The lei rose 22% against the dollar last year. Romania, which is entitled to receive more than €32 billion from the EU through 2013 in „structural accession funds,” must also match such financing from its own budget. Of total financial aid from the EU, €13 billion will be used on farming projects, with 40% of the country's population living in rural areas, Vladescu said. An increase in government spending this year won't fuel inflation, because the money will go mainly to investments that don't cause prices to increase, Vladescu said.
Romania's annual inflation rate fell to 4.7% in November, the lowest in almost 17 years. A flat tax of 16% on both individual and corporate income introduced by Tariceanu's government in January 2005, led to a 22% gain in revenue from taxes in 2006, because people and companies became more willing to pay taxes, Vladescu said. Revenue from taxes rose 25% in 2005 from 2004. Romania's flat tax replaced the previous corporate tax of 25% and individual income taxes as high as 40%. „Investors and citizens are very happy with this low taxation and we intend to keep to this flat tax at least for the next two years,” Vladescu said. (Bloomberg)