Finance minister Eugen Teodorovici made a surprising announcement this week: the ministry is considering creating an exception buffer for covering foreign debt, through an emergency ordinance. This government document will allow Romania to create another buffer of EUR 5.3 billion, used for paying four months’ worth of the state’s total spending. It’s the amount left out of privatizations made by the state.

If, for some reason, there is no financing source for pensions and salaries, the Ministry of Finance would suddenly turn to that money. Officially, Romania already has a buffer created in 2014 during the IMF agreement that should ensure at least 4 months of public spending. Practically, the legislation exists for this switch, but it needs to be updated.

According to Finance Ministry officials, the money from privatizations, which can be used for financing foreign debt, totals around EUR 5,3 billion. Considering the high interest rates at which the state is financing its deficit, two and a half times bigger than last year, according to a Business Review analysis, free money from this buffer would decrease the pressure on the public deficit, already expanded by public spending.  This instrument would help the state manage the public debt, easing the pressure for at least for four months in case of default.

Since the beginning of 2018, Romania has spent RON 2.5 million more per day due to the increase of interest rates for state loans, according to an analysis conducted by Business Review. The causes of this increase include the rapid hike of inflation, the growth of the ROBOR index and the state’s growing financing needs due to an increase in spending, analysts say.

The state has to borrow around RON 44 million more to cover the gross amounts it needs for financing (loans reaching maturity plus the budgetary deficit), according to data posted on the Finance Ministry’s website.


The post The Government is preparing emergency savings! How bad is the spending bill? appeared first on Business Review.