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ROMANIA

12-14 March 2014

Gemloc Conference

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Diana Popescu Deputy General Director

Treasury and Public Debt Department

Ministry of Public Finance

Stefan Nanu General Director

Treasury and Public Debt Department

Ministry of Public Finance

2

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3 3

Characteristics of outstanding government debt …........................................................…...….…….5 2.

4. Secondary market performance…………...…..…………………………………………………………..…9

3. Primary market performance….………….................................................................……………………8

Debt Management in 2014 …………………………………………………………………………………....11

5.

Strengthening Public Debt and Cash Management in Romania….…………………………………....12 7.

2014 Funding Plan…...………………………………………………………………………………………....10

6.

Debt Management Policy and Actors ………………........................................................…...….…….4 1.

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4

1. Debt management policy and actors

Debt management policy

Government debt management policy involves the establishment and execution of strategy for managing

the Government debt portfolio in order to met funding requirements and to achieve the following

objectives:

Ensuring the needs of central government funding and payment obligations amid minimize costs in

the medium and long term;

Limiting the financial risks associated with government debt portfolio, in particular by extending the

average maturity of outstanding debt, and

Development of domestic markets for government securities.

Debt Management Actors

Government of Romania through MoPF - Treasury and Public Debt Department;

National Bank of Romania;

Primary Dealer System.

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Romania’s debt-to-GDP ratio remains one of the lowest in the EU and CEE regions

General government debt *) was 38.2% of GDP at end December 2013 and is forecasted to stay below 40 % of GDP in the medium term

interest payments expenditures from the general consolidated budget to GDP

1.8% - end of 2012

1.7% - end of 2013

1.7% - estimated for 2014

Average weighted time to maturity of government public debt, according to national legislation at the end of December 2013 was 4.4

years, versus 3.9 years at the end of 2012

Average weighted time to maturity of government securities, according to national legislation issued on domestic market at the end of

December was 2.4 years, versus 1.7 years at the end of 2012

*) According to EU methodology

86.8%93.4%

80.2%77.1%

73.6%58.0%57.2%

46.0%46.3%

40.7%38.9%38.0%

27.7%17.3%

10.0%

EU 28

Spania

Hungary

Austria

Netherlands

Poland

Slovakia

Chech Republic

Denmark

Sweden

Romania

Latvia

Luxembourg

Bulgaria

Estonia

General government debt/GDP (%, September 2013) comparison

Source: Eurostat – newsrelease euro indicators 22 January 2014

2. Characteristics of outstanding government debt

5

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6

2. Characteristics of outstanding government debt (cont.)

14.9% 17.1% 19.3% 20.9%

15.6% 17.6% 18.7% 17.3%

30.5%34.7%

38.0% 38.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2010 2011 2012 Dec-13

General government debt/GDP (%, end of period) according to EU methodology

Public government debt service projection (RON billion)

55.646.1

35.8 34.8

21.0 22.2

10.2

11.0

8.8 7.2

5.6 4.6

65.857.1

44.6 42.1

26.6 26.8

0.0

20.0

40.0

60.0

80.0

100.0

2013 2014 2015 2016 2017 2018

principal interest and fees

Domestic government debt (% of GDP) External government debt (% to GDP)

Note: based on contracted debt at end Dec 2013, according to national legislation

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USD, 6.4

EUR, 46.2

SDR, 2.0Other,

1.0

Fixed, 76.8%

Variable, 23.2%

Under 1 year,

11.7%

1 to 5 years, 37.6%

Over 5 years, 50.7%

T-bills, 4.1

Bonds, 38.9

Eurobonds, 18.1

Loans, 31.2

Loans from surplus of State

Treasury account, 7.7

By currency By interest type Public government debt by Initial maturity

Source: Ministry of Public Finance

Note : Data according to national legislation

By instruments ( % outstanding public government debt)

7

By type of initial maturities (billion lei)

2. Characteristics of outstanding public government debt (cont.)

64.1 67.8

43.429.8

118.4

142.6

183.4

222.6

0.0

50.0

100.0

150.0

200.0

250.0

2010 2011 2012 Dec-13

short term

medium and long term

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8

3. Primary market performance Total outstanding local government securities up-to-date - Ron 108.2 bn o/w:

Ron 91.4 bn (Ron denominated)

Ron 16.8 bn (Eur denominated)

Distribution by investor type Government securities issued in 2013 (initial maturity) Dec 2013

Local commercial

bank

55.2%

Pension funds7.03%

Non-resident holdings

21.3%

6M T-bills4% 1Y T-bills

15%

2 Y bonds6%

3 Y bonds26%

4Y bonds6%

5 Y bonds28%

7Y bonds5%

10 Y bonds10%

15 Y bonds0%

-300

200

700

1,200

1,700

2,200

2,700

3,200

7-Ja

n-1

3

7-Ja

n-1

3

13-J

an-1

3

14-J

an-1

3

14-J

an-1

3

19-J

an-1

3

21-J

an-1

3

26-J

an-1

3

4-Fe

b-1

3

4-Fe

b-1

3

9-Fe

b-1

3

11-F

eb-1

3

16-F

eb-1

3

18-F

eb-1

3

23-F

eb-1

3

9-M

ar-1

3

10-M

ar-1

3

15-M

ar-1

3

17-M

ar-1

3

17-M

ar-1

3

22-M

ar-1

3

4-A

pr-

13

8-A

pr-

13

15-A

pr-

13

18-A

pr-

13

22-A

pr-

13

25-A

pr-

13

11-M

ay-1

3

11-M

ay-1

3

13-M

ay-1

3

18-M

ay-1

3

20-M

ay-1

3

25-M

ay-1

3

27-M

ay-1

3

3-Ju

n-1

3

06-J

un

-13

10-J

un

-13

17-J

un

-13

20-J

un

-13

25-J

un

-13

8-Ju

l-13

11-J

ul-

13

15-J

ul-

13

22-J

ul-

13

25-J

ul-

13

5-A

ug-

13

8-A

ug-

13

13-A

ug-

13

19-A

ug-

13

22-A

ug-

13

9-Se

p-1

3

14-S

ep-1

3

16-S

ep-1

3

28-S

ep-1

3

3-O

ct-1

3

3-O

ct-1

3

7-O

ct-1

3

12-O

ct-1

3

19-O

ct-1

3

20-O

ct-1

3

28-O

ct-1

3

4-N

ov-

13

7-N

ov-

13

11-N

ov-

13

14-N

ov-

13

18-N

ov-

13

25-N

ov-

13

2-D

ec-1

3

5-D

ec-1

3

9-D

ec-1

3

12-D

ec-1

3

16-D

ec-1

3

19-D

ec-1

3

vo

lum

e o

f th

e n

ew

issu

ance

s (m

ln.

lei)

auction date

Government securities denominated in RON issued on primary market

Announced amount Auction amount

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3. Primary market performance (cont.)

Domestic market yield curve evolution (Ron)

Inflation and interest rates for 12m T-bills Dec. 2012 – Dec. 2013

Source: Ministry of Public Finance 9

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Source: NBR

JP Morgan Index evolution

Date Number of

Issues

Outstanding

amounts

(Local MLM)

GBI-EM

Current wgt.

(%)

Mar.

2013 3 bonds 11.446 0.54

Jan. 2014 4 bonds 28.160 1,16

10

4. Secondary Market Performance

Most tradable government securities in December 2013

Government securities liquidity in 2013

26,8%22,89%

27,6%

40,7%38,1%

52,8%

32,0%31,8%

19,4%

39,27%

25,4%

24,7%

43,5%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13Jul-1

3

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

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11

5. 2014 Funding program Maturing government securities in 2014 (Ron and FCY), local market

Redemption profile of government securities and external package YTD at March 11, 2014

Financing sources:

Domestic market (government securities)

External market (Eurobonds, loans from official institution (IFIs

and government agencies ) and commercial banks.

Total financing needs of General

government (EUR bn)

13.5

I. Deficit 3.2

domestic market 1.6

external market 1.6

II. Redemption of government

securities at end 2013

8.3

III. Principal repayment for loans 2.0

IMF 1

IFIs and commercial banks 0.8

local authorities 0.2

2.8

1

5

5.7

0.8

0.8

6.8

0.3

1

7.0

1.1

5.76

0

1

2

3

4

5

6

7

8

Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec.

Local government securities in EUR (bn RON) Local government securities in RON (bn RON)

6.6

3.13.6

2.6

1.2

0.6 0.51.1

0.2

1.30.9

1.6

1.5

1.52

1.7

0.71.1

0.7

1.51.2 1.4

10.6 0.4

1

0.2

0

1

2

3

4

5

6

7

2014 2015 2016 2017 2018 2019 2020 2021 2022 2024 2023 2027 2044

bln RON local securities on domestic market

EUR local securities on domestic market

EUR Eurobonds

USD Eurobonds

EU

IBRD

IMF

5.5

3.4

4.2

3.2

1.5

0.7 0.70.2

1.30.9

1.6

1.5

1.52

1.7

1.10.7 0.7

1.51.2

1.41

0.6 0.4

1

0.2

0

1

2

3

4

5

6

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2027 2044

bln RON local securities on domestic market

EUR local securities on domestic market

EUR Eurobonds

USD Eurobonds

EU

IBRD

IMF

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12

6. Debt Management in 2014

Key Objectives for 2014-2015

Ensure the government meets its financing needs and payment obligations, while

minimizing medium and long-term costs

Limit risks in the government public debt portfolio, especially by extending the average

remaining maturity

Develop the domestic market for government securities (increase efficiency,

transparency and predictability)

Steps to Achieve the Objectives

Flexible approach in selecting the financing sources

Increase the remaining maturity of the debt portfolio /of local government securities , by

extending the maturities of government securities

Extend and diversify the domestic market investor base

Access the external capital markets in a flexible manner

Consolidate the FX financial buffer of the State Treasury

Public Debt Strategy for the period 2014-2016 to be revised in the first quarter of 2014

Legal and operational framework for the liabilities management (buy backs and bond

exchanges) and for an active cash management (reverse repo) to be established with

the support of the WB technical assistance

Debt management targets

Fulfilling the objectives of the Government Debt Management Strategy 2013-2015

Parameters *) December 2013

Indicative targets

according to

government public debt

strategy 2013-2015

A.Currency risk

Share of domestic currency debt

in total (% of total) 39.5% min 40%

Share of EUR denominate debt

in foreign currency denominated

debt (% of total) 83.0% min 70%

B.Refinancing risk

Debt maturing in 1 year (% of

total) 19.0% max 25%

Local currency debt maturing in 1

year (% of total) 33.0%

max 45% in 2013, and

lower thereafter

ATM for total debt (years) 4.4 min 4 years

ATM for local currency debt

(years) 2.7

min 2 years in 2013 and

higher thereafter

C.Interest rate risk

Debt re-fixing in 1 year (%of

total) 26.0% max 35%

Local currency debt re-fixing in 1

year (% of total) 31.0%

Max 45% in 2013, and

lower thereafter min 3.5

years

ATR for total debt (years) 4.3 min 3.5 years

ATR for local currency debt

(years) 2.7

Min 2 years in 2013 and

higher thereafter

*) without loans from the availabilities of the General Account of Treasury

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7. Strengthening Public Debt and Cash Management *

Setting basis for a liquid, transparent, secure and efficient debt market through:

Enhancing the primary auction system developed by NBR (electronic transfer of the bids) – in place starting with March 1st, 2014;

New regulation to support increased competitiveness among PDs – new set of appraisal criteria focusing on PDs performance on the primary and secondary market (underwriting commitment of 2% of the total volume of government securities issued in the primary market auctions and 3% including the amounts acquired for clients, incentives: non-competitive auctions, favorable treatment for bond issuances on the foreign markets);

Establish electronic trading platform (ETP)* – additional benefits for government securities - price discovery, monitoring and compliance by PDs with price quoting obligation for the selected benchamrk bonds => enhance market liquidity;

Primary dealer agreement and PD Code – consolidate provisions governing the PD status in one single contractual arrangement (duties, responsibilities and privileges regarding the primary and secondary government securities market);

Liability management operations* (buy backs, bond exchanges, financial derivatives) in order to manage the refinancing risk, repurchase of low and illiquid issuances distorting the yield curve and build greater liquidity for new benchmark bonds (on-the-run)– legal and operational framework as well as technical infrastructure, envisaged for late 2014/beginning 2015; still a

Moving to an active cash management* (short-term T-bills and reverse repo) while fine tuning the forecasting function;

Improving the management of the hard currency proceeds available in the treasury buffer

Gradual lowering of the face value in order to facilitate the access of the retail investors.

Developing the capacity to manage the risk of the debt portfolio, design and implement a debt management strategy*:

Public Debt Strategy for the period 2014-2016 to be revised in the first quarter of 2014 – increase predictability and transparency, actions related to government securities: lengthen maturities, building up liquid benchmarks across the yield curve, increasing the liquidity of the on-the-run bonds, a more predictable issuance plan etc.;

Broadening the investor base – pension funds, insurance companies, retail investors

MoPF official page on Bloomberg providing public debt information and reports, organization of meetings with institutional investors, deal / non-deal roadshows.

Improving the infrastructure and debt management processes:

Simplifying the debt service process* (moving from a manual, paper-based process to an electronic/automatic one);

Establishing auction facilities in MPF to run cash management operations and liability management operations;

Connecting in a secure way different systems used in debt management (links between (FTI) to the primary auction system, auctions faciltiies which will be developed for cash management and liabilities management operations)

* With the support of the WB technical assistance