Romania may still meet its 2007 plans to sell debt worth 12 billion lei ($5 billion) despite recent attempts to cut back on issuance to help ease pressure on yields, a senior official said on Monday.
European Union newcomer Romania has scaled down debt issues in recent months, going as far as rejecting all bids at several tenders, while the market has pushed yields up due to resurgent inflation and currency risks.
But Deputy Finance and Economy Minister Sebastian Vladescu told Reuters in an interview Romania may still meet its plans as it needs to infuse its tiny treasuries market with funds and give investors longer-term instruments to park their cash.
"We want to stick to the issuance calendar because what we are trying very much to do at the moment is ... to have a constant financial instrument to offer to investors," he said. "But we must be careful with the costs involved, and as long as the financing needs have not been high, we have set issue volumes that would allow us to establish this balance between costs and our wish toket."
Romania's consolidated budget ran a surplus of 0.3 percent of gross domestic product in the first eight months of the year. The Black Sea state, which cancelled all auctions last year because of budget surpluses, has sold roughly 9 billion lei worth of local paper so far this year.
Average accepted yields have hovered around the central bank's key interest rate at 7 percent. Analysts said investors tried to push yields higher at an auction last week, when the ministry rejected all bids, after annual inflation data exceeded expectations and reached 5 percent in August, up from 4 percent in July.
Vladescu said prospects for solid long-term economic growth supported by labour productivity gains and technological upgrades will partly offset inflation pressures on issue costs. "It is possible that pressure on yields increases (further) but there are factors that will maintain investors' trust in Romanian instruments and under these conditions yield pressure will not be so great."
Vladescu said previously announced plans for a Eurobond issue of at least 500 million euros are waiting for the right market conditions, adding the issue would carry a maturity of at least 5 years.
"Markets are already less favourable than they were six months ago," he said. Vladescu said Romania's economy will not be affected by the global credit crunch, with the budget deficit below the euro adoption target ceiling of 3 percent of GDP, inflation within the 3-5 percent target band, and GDP growth of around 6 percent.
He also played down analyst and investor worries that the current account deficit, which almost doubled on the year in January-July, would lead to a sharp exchange rate correction.
"Romania will continue to expand, this current account deficit will probably continue to exist, I don't see a very strong threat from it," he said. The high-yielding currency has lost roughly 7.3 percent versus the euro since August, with investors fretting over long-term risks from the country's current account deficit.
Vladescu said a large part of the deficit stemmed from technological imports as Romania's industry races to upgrade its operations in order to better compete on the single market. But he warned Romania needs to speed up infrastructure work, particularly motorways, or face the risk of failing to attract sufficient foreign direct investment. "Limiting the capacity of Romania's infrastructure will be a negative factor for medium economic growth," he said.
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