Speeches & Transcripts

Romania: Government Bond Market Conference and Workshop

March 12, 2014

Elisabetta Capannelli, World Bank Country Manager for Romania and Hungary Bucharest, Romania

As Prepared for Delivery


  • Minister Voinea, Secretary of State Jiru, Mister<NBR>, Dear participants, ladies and gentlemen, good morning
  • It is my great pleasure to welcome you all to the 4th Annual World Bank Government Bond Market Conference and Technical Workshop. Before I proceed I want to thank the Ministry of Public Finance Romania and the National Bank of Romania for making it possible for us to convene here today.
  • Every year, the Government Bond Market Conference provides valuable investor-country insights on the outlook and challenges for local currency bond markets.
  • But the bond market itself is anchored in a much wider national, regional and international economy and I would like to start with some considerations regarding recent evolutions and prospects for Romania’s economy as it provides a good example of the conditions and challenges emerging economies are confronted with.
  • In this context I will also touch upon the role of the World Bank in Romania and our Strategy.

The Romanian Economy

  • In 2013, Romania achieved one of the fastest GDP growth among the EU countries (3.5% of GDP), driven by strong exports growth and agricultural output, offsetting falling investment and muted domestic consumption.
  • Fiscal consolidation is on track. With a public budget deficit of 2.5% of GDP at the end of 2013, Romania is well below the EU28 average of 3.5% and in the minority of the 11 European Union countries that are not currently under the EU Excessive Deficit Procedures.
  • The current account deficit narrowed to -1.1% of GDP at the end of 2013, from -4.4% at the end of 2012. Consequently, the external borrowing needs were reduced and the gross external debt, both public and private, is levelling off at around 96 Billion Euro, or 70% of GDP.
  • The General Government gross debt, which had increased significantly after 2009, is expected to peak in 2014 at 39.3% of GDP and start declining afterwards. At the end of 2013, the official reserves of the National Bank represent a comfortable 167% of the short term external debt and the equivalent of 6.6 months of imports.
  • With inflation at historically low levels, the National Bank had room to ease monetary policy in 2013 in order to support the economy. Over the last two years the Romanian currency was one of the least volatile compared not only with countries in the region (such as Hungary, Poland and the Czech Republic) but also with larger emerging economies (like Brazil, Turkey and South Africa).
  • Some progress has been achieved in structural reforms with, for example, the successful listing of large energy utilities (Romgaz and Nuclearelectrica) on the Bucharest Stock Exchange, but many important structural reforms remain to be tackled.
  • Financial markets have noticed the good macroeconomic performance of the Romanian economy and as a result, the sovereign borrowing situation has improved significantly. At the World Bank, we believe this will remain favorable even after the slight increase in borrowing costs at the end of January 2014 due to emerging markets volatility. As part of the country’s strategy to extend debt maturity, Romania tapped international bond markets with a 30-year US dollar bond priced to yield 6.258% in January this year– Romania’s longest dated dollar bond.
  • I would like to emphasize that all these achievements, involving painful but needed adjustments, were made possible by a remarkable continuity in keeping on course the macroeconomic policies across various governments and political coalitions that changed over the years and months. This is a fundamental observation that makes me generally optimistic of Romania’s capacity to realize its development potential in the medium term.

Going Forward – Reforms need to deepen

  • But success is not granted and many weaknesses persist.
  • In order to overcome a still turbulent and uncertain international environment, in addition to continuing to consolidate its macroeconomic situation, Romania should (i) strengthen its competitiveness by improving the business environment, (ii) improve the functioning of the public administration and make better use of its human and natural resources, and (iii) ensure that prosperity is widely shared among all citizens.
  • In order to achieve this, reforms must be continued and deepened to the point where they become relevant for ordinary people’s lives.      
  • The crisis showed that Romania had exhausted the sources of growth on which convergence to the EU income level was based in the past decade. These were driven by credit, domestic consumption and expansion of the non-tradable sector (for example real-estate).
  • A shift in Romania’s growth paradigm is required now to ensure that recovery from the crisis is sustainable and the country is engaged on a sustainable, long term development path.
  • Structural reforms that increase market efficiency and unlock firm competitiveness are necessary in this respect. Policies aimed at improving entry and exit regime, enhancing competition and improving the functioning of the capital markets are essential.
  • The business environment in Romania is less competitive than in other EU countries, with negative impact on productivity. To give just one example, the OECD Product Market Regulation indicators suggest that regulations in Romania are among the most restrictive of competition in the European Union.
  • In order to compensate for an unfavorable demographic evolution, the country needs to increase labor market participation rate - now one of the lowest in Europe - by tapping its underutilized labor resource pools of women and minorities, including the Roma.
  • For this to be possible, the training and education system must be overhauled, the health services must be modernized, and social assistance must be increased and better targeted.

The World Bank role in Romania

  • As a longtime partner of Romania, the World Bank will continue working together with the Authorities for devising and implementing the appropriate reforms.
  • The framework for our future cooperation is outlined in our new Country Partnership Strategy which covers the period 2014-2018. Such Strategy is the result of a comprehensive analytical effort that included inputs not only from government officials and institutions, but also local authorities, various professional associations, NGOs, academics and other representatives of the business environment and the civil society. 
  • Together we have identified three areas where the Bank has a role to play and that require intervention:
    • Public administration. There is no doubt in my mind that a well-functioning civil service is a prerequisite for development and it is especially important in the context of the European model. Reforms in this area are under way in different areas, from judicial reform to SOEs governance, fiscal administration modernization or increasing efficiency of local governments. They must be accelerated and expanded.
    • Jobs and growth. Here, I believe that Romania needs to review the prerequisites for growth and to encourage a more conducive business environment.
    • Social inclusion. Shared prosperity is not only morally desirable, it is smart economics. Policies that build skills and opportunities ensure labor mobility, remove barriers to work and provide targeted social protection all encourage private sector competitiveness and are a vital ingredient of sustainable development.

The Government Bond Market Development

  • But let me bring back the attention to our international focus of today. That is the development of local currency government bond markets to finance business investment and infrastructure – sectors that support economic growth, create jobs, and lift people out of poverty.
  • Romania has a relatively high savings and investments rate in the European context and a first priority is to reduce waste and improve efficiency of the domestic public and private investments.
  • But to sustain high growth rates and continue convergence with the European Union, Romania needs additional capital from abroad. The European structural and investment funds (ESIF) and the rural development funds are an obvious source of capital that has to be better utilized, considering that Romania will be granted close to Euro 40Bn. for the 2014-2020 budgetary exercise.
  • But even if they were to be fully absorbed, these funds would only amount to around 4% of GDP, and can only be directed to certain sectors and projects in line with Romania priority strategies and EU priorities and rules.
  • In order to spur growth, private capital is required to complement the EU and Romania funds. Romania must make greater efforts to attract such capital in an ever more competitive international environment.
  • I am preaching the converted here if I state that the financial capital markets play an essential role in mobilizing domestic and foreign resources and that, in the context, the Government Bonds Market provides a foundation for the capital markets as a whole.
  • It is in this context that I reiterate that today’s Conference is important as it brings together representatives from Ministries of Finance, Central Banks, and securities regulators from 20 emerging market countries, local and global investors, as well as other market participants which will have the opportunity to discuss the trends, themes and potential hurdles likely to shape the local bond markets over the coming years.
  • With over 80 percent of total public debt being funded through local currency debt instruments, emerging markets have been striving to enhance price discovery, transparency and stimulate liquidity of their local debt markets. Deeper and more liquid markets attract more funds, strengthen public debt profiles, create better pricing benchmarks, and provide a stronger foundation for building private sector fixed income products.
  • Despite the challenging global economic climate and recent volatility, local bond markets are expected to continue to grow backed by an increasing local institutional investor base in several emerging economies and greater participation, in the medium and long term, by non-resident investors that are still underinvested in this asset class.
  • The World Bank’s Government Bond Market Development Program supports the development of local currency bond markets in these countries to increase their investability and attract new domestic and international investment. The program supports and leverages country-led reforms through its three interactive pillars including country-specific programs, cross-country dialogues, and knowledge products.
  • The Government Bond Market Development Program in Romania, on which you will hear more about today, is one excellent example of the type of support the program can provide. 
    • The World Bank Group is supporting the Ministry of Public Finance in strengthening its public debt and cash management practices in several aspects that can improve Romania’s domestic bond markets, including a more robust regulatory and operational framework for cash management and liability management transactions, mapping of trading infrastructure upgrades for effective execution of Romanian Treasury's primary and secondary market transactions, and capacity building for Romanian Treasury staff to implement active cash and liability management.
    • The success to date is of course due in large measure to the positive and productive partnership we have in Romania in doing this work. 

Concluding Remarks

  • I want to again extend my gratitude to our Romanian colleagues, for hosting this conference and for being such a great partner for the WB’s Government Bond Market Development Program.
  • I would also like to thank to all of you for joining us and contributing with valuable insights and experiences and to the Bank’s staff who worked to make this possible.

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