Below, we take a closer look at Romania’s debt-to-GDP ratio and answer some frequently-asked questions about how the government raises loans.
The National Debt of Romania
Romania is part of the EU but has its own currency and isn’t part of the Eurozone.
This means that it doesn’t have the same degree of oversight of its state debt reporting that other countries in the EU, such as France and Germany, have.
That gives the Romanian government a little more flexibility when calculating its national debt. However, it chooses an even more comprehensive debt measure than the requirements placed on EU countries by the Maastricht Treaty.
The IMF counts “general government debt” when it calculates the national debt of a country. That includes the debts of the central government and all other levels of government in a country.
At the end of 2020, the IMF estimated that the gross national debt of Romania worked out at 44.8% of the country’s GDP.
These debt levels are very healthy and give the government of Romania scope to borrow a lot more should the country face a financial crisis like the one posed by COVID-19.
Is Romania’s National Debt Rising?
Romania has always had a low amount of national debt. However, that debt rose dramatically after the financial crisis of 2008.
The stimulus required by the government to counter the effect of the banking liquidity crisis meant that it had to take on debt. The effects of those actions rapidly increased Romania’s national debt, which kept rising as a proportion of GDP until 2014.
Since 2014, the Romanian government has managed to bring down the debt-to-GDP ratio. Even so, official government figures show that the actual debt amount has continued to rise year on year despite the country’s debt-to-GDP ratio falling.
The government’s annual budget deficit became particularly severe in 2009.
The reason that the country’s debt-to-GDP ratio had started to fall is that the growth in GDP outstripped the rate at which the national debt was increasing.
Like many other countries, Romania’s economy was severely affected by COVID-19. This erased a lot of the progress made to bring down the country’s budget deficit.
The European Commission predicted Romania’s general government deficit to increase to around 10.3% of GDP in 2020, from 4.4% in 2019. This was set to rise further to 11.3% in 2021 and 12.5% in 2022.
As a consequence, Romania’s debt-to-GDP ratio was forecast to rise from 35.3% in 2019 to around 63.6 % in 2022.
Who Manages Romania’s National Debt?
The central government is responsible for the national debt of Romania and is answerable to the country’s parliament.
The government department that is specifically tasked with overseeing Romania’s debt is the Ministerul Finanțelor Publice, which is the country’s public finance ministry.
Although the ministry sets the government’s budget and so decides whether the country will need to take on more debt, it gives the job of raising that debt, making interest payments, and redeeming expired debt instruments to the central bank of Romania.
The Banca Naţională a României calls itself the National Bank of Romania (NBR) in English.
How Does the Romanian Government Raise Loans?
The NBR is in change of both the primary and secondary markets for Romanian government debt.
The “primary market” refers to the bank’s method for creating new debt instruments and selling them. The “secondary market” is any open trading system where any investor can buy and sell already-existing government securities.
Other financial institutions and large-scale investors can get a slice of this initial sale, but only by getting one of the authorized dealers to act as an agent.
The authorized bidders, called primary dealers, often already have buyers lined up before they bid in an auction. When they don’t, they place their allocation onto the secondary market to resell them. This is how government securities become available for everyone else to buy and sell.
When the government wants to issue bonds in foreign currencies, the NBR deals with a syndicate of banks within the country of that currency and sells the whole issue in one transaction to that group. That syndicate will then float the securities on their local market.
What Government Securities Does the Public Finance Ministry Sell?
The government has two time horizons for the debt that it needs to raise. These are:
- Short-term financing
- Long-term financing
The cut off length in the definition between short-term and long-term is one year. A debt agreement with a duration of one year is defined as long-term, so the longest period that a short-term debt agreement can have is one year minus one day.
Short-Term Debt Instruments
The government of Romania uses the treasury bill format to raise short-term debt. In Romanian, these are called Certificate de Trezorerie.
These devices are only ever issued in Romania’s currency, which is the Leu. The bills do not pay interest. However, they are sold at a discount and redeemed at face value.
Long-Term Debt Instruments
For long-term financing, the government issues Obligațiuni de Stat, which are bonds. Most of the bonds issued by the Romanian government are denominated in Leu (ISO code RON). However, the government also occasionally issues bonds in Euros and US Dollars.
Romania uses the “benchmark bond” format for its long-term debt. Bonds pay a fixed rate of interest for their duration and are redeemed at full face value on the maturity date. The government has also issued floating-rate bonds both in Leu and in foreign currencies.
Fun Facts About Romania’s National Debt
- You could wrap $1 bills around the Earth 425 times with the debt amount.
- If you lay $1 bills on top of each other they would make a pile 11,925 km, or 7,410 miles high.
- That's equivalent to 0.03 trips to the Moon.
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Sources and Further Reading
- International Monetary Fund
- Learn more about the state of world government debt from our other country debt clock pages.
- See our global economic indicator guide to more than 45 countries.
- Get our full guide to trading commodities.
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