The Ministry of Finance forces and unbalances the internal market by raising interest rates on lei and euros in order to raise as much money as possible to finance the government and pay or refinance debts. How much should the interest on loans be, if the government pays an interest of 7.6%-7.9% to take money?

In August 2024, when I read the news that a Romanian, as a natural person, bought 324 million lei of Fidelis government bonds, for five years, with an interest rate of 7% per year, fixed, non-taxable, I said that dealt the blow, especially since interest rates seemed to be falling, and the BNR was preparing to reduce the reference interest rate due to the fall in inflation (in fact it cut it in half steps, from 7% to 6.5%, but stopped). The moment you secure yourself a high fixed interest rate, over a long period of time, when it is assumed that the interest rates will be lower, you can say that you hit the jackpot. According to information given by thoughtthe one who bought Fidelis state bonds worth 324 million lei was Romeo Pomponiu, the owner of the Steilmann chain of stores. In August 2024, I did not imagine that just a few months from now, in December, an interest rate of 7% would be low, because the money market took another turn after the presidential and parliamentary elections at the end of November. The Ministry of Finance had to raise interest rates in order to get money, considering that the result of the presidential elections threw Romania «into the air» by the appearance of an outsider with a sovereignist, populist rhetoric, and the risk for Romania increased substantially, which made the foreign investors who buy Romanian government securities, plus the banks with foreign shareholders on the Romanian market, take two or three steps back and reduce the exposure and the level of purchases of government securities. This is how it happens that in December the Ministry of Finance also raised the interest paid on Fidelis government bonds for natural persons to 7.9% for three years (7.9% per year!!!) and to 7.6% for five years. In euros, the Ministry of Finance paid an interest of 5.75% per annum on the seven-year maturity and 3.75% per annum on the two-year maturity. In December, Fidelis attracted 2.6 billion lei, in lei and foreign currency. Now, in January 2025, the Ministry of Finance has just launched the issue of Tezaur government bonds for individuals, where they offer an interest of 7.8% per annum on the maturity of five years, an interest of 7.5% per annum on the maturity of three years and an interest of 7% on the maturity of one year. On the interbank money market, where previously issued government bonds in lei are traded between banks and between large local and foreign investors, yields (effective interest) reached 6.83% on maturity on January 9 (the latest data provided by the BNR) of one year, 7.35% on the three-year maturity, 7.46% on the five-year maturity and 7.61% on the ten-year maturity. The interest rates offered by the Ministry of Finance are much higher than the interest rates offered by the banks: – Banca Transilvania, the largest bank, pays an interest rate of 5.2% in lei for one year, 5.25% for two years, and after three years of 5.35%. In euros, the interest rates offered are between 1.75%-2.5% per year, i.e. half of what Finance offers; – CEC Bank offers an interest rate of 5.25% for one year in lei, 5% for two years and 5% for three years. In euros, CEC Bank offers interest between 2.35%-2.4%; – BCR has a 12-month/1-year interest rate of 5% in lei, and 1.5% in euros; – BRD offers an interest in lei between 4-4.5% for one year, 3.8% for two years, 3.8% for three years. In euros, interest rates are between 1.15%-1.65% per year. Plus, the earnings from these interests are taxed by the state with a 10% tax. The Ministry of Finance, i.e. the government, is in great need of money and that is why it can afford to offer these interest rates, which are much higher than the interest rates offered by banks, which have less need for money considering that deposits made by customers – both natural persons , as well as companies – are higher than loans. Anyway, deposits in lei attracted by banks, with lower interest rates than the Ministry of Finance, had last year, until November (the latest data provided by the BNR), a growth rate of 17.9% at the population level, while loans granted to the population increased by only 12.6%. For companies, the situation is the opposite, loans granted until November had a growth rate of 10%, compared to a growth rate of company deposits of 8.7%. But also with companies, the deposits constituted by them (188 billion lei) are higher than the loans granted to them (121 billion lei). The Ministry of Finance has not yet announced the funding requirements for this year for the current budget deficit and for the refinancing of debts that are due and cannot be paid, that there is not enough money because the budget is in deficit, so new ones must be made, to be able to pay them. According to the first estimates, the financing requirement for this year of the Ministry of Finance/government is between 250-350 billion lei, an amount that must be borrowed both in lei and in foreign currency. On Friday, the Ciolacu 2 government just increased the ceiling of external loans – MTN (Medium Terms Notes) – from 75 billion euros, as it is now (from which 73.5 billion euros were withdrawn), to 90 billion of euros. In 2010, when this program appeared, the foreign loan ceiling was only 7 billion euros, so in 15 years it has increased almost 13 times. The Ministry of Finance stated that for this year it wants to borrow 13 billion euros from the foreign market, which means that in lei it would be 65 billion lei. This means that the rest of the money, up to 250-300 billion lei, needed for financing, should be taken from the domestic market and from European funds. Ştefan Nanu, the head of the Treasury, will become this week in Vienna, at Euromoney – the most important conference for investors in Central and Eastern Europe, one of the most sought after characters to give explanations to investors about what is happening in Romania, about how how the government has to finance itself, about the political changes that are happening in real time in the country. Romania has become the most important player on the market of government loans in Central and Eastern Europe, surpassing even Poland, which means that the interest of foreign investors who lend to Romania, who lend to the government, is major. In addition to the fact that the Ciolacu 1 government, as well as the Ciucă government, i.e. the last four years, created a very big internal problem through the budget deficit created and the increase in public debt, now the Ciolacu 2 government is creating a big problem not only through the amounts that must to lend them, but also through the interest rates offered to lend this money. When the Ministry of Finance/government offers an interest rate of almost 40-50% more in lei and double in euro, it is almost impossible to see a decrease in interest rates in lei on credits, which the economy demands, which companies and individuals demand physical. When the government offers an interest rate of 7.5-7.9% for three years and an interest rate of 7.6-7.8% for five years, what interest rate on loans can the banks offer? This in the conditions in which the government expects to sell state securities «without number, without number» to banks on the Romanian market, if foreign investors no longer want to buy Romanian state securities. According to the NBR data for November on the system, banks had an average interest rate on deposits of 5.13%, and on loans of 8.43%. In November 2023, the average interest on deposits was 6.25%, and on loans 9.15%. 2025 will be a year when high interest rates in lei will be one of Romania's means of defense on the financial market to make the government, regardless of its name, worth money, and not a little, and to convince foreign investors who finance Romania to keep their money here. This is provided that the leu/euro exchange rate would remain stable, a condition set by investors. No one knows what will be the result of the presidential elections in May, but everyone, all investors, both domestic and foreign, are watching Romania. It is good and nice when we applaud what we would like to hear, when we go out into the streets and ask for our country back, but in the end it all comes down to money, risk perceptions, how much everyone is willing to lend the government, the banks, Romania.
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