Political crisis has already driven up foreign financing costs

While politicians are fighting over the new government, foreign investors’ perception is deteriorating again, at the very moment Romania most urgently needs money. The prolonged political crisis has rendered Romania more risky than Hungary and Croatia in the eyes of foreign investors, with the risk premium for foreign financing climbing by one half of a percentage point in the past month. Quotes of CDSs for Romania, gauging the cost of default risks, rose to 2.55%, while they stand at 2.01% in the case of Hungary. Had Romania issued euro-denominated bonds in late September carrying a 6.5-7% interest rate per annum, it would now face payments at least 0.5% more expensive. Under the circumstances, the state urgently needs the 2.5bn euros from the IMF and the EU to finance its budgetary deficit. At the same time, the rising country risk premium is driving up the cost of foreign borrowing by banks or companies.