BUCHAREST (Reuters) — Romania’s government is losing its battle to keep a lid on its borrowing costs and risks having to pay investors even higher premiums if it does not now concede the discounts they are demanding to buy its debt.

Bucharest has struggled to sell debt at yields it deems acceptable and refused to go over 7 percent, but rates of return are more likely to rise than fall due to austerity measures hampering economic recovery and an unstable government.

Reuters calculations show Romania needs to raise some 19 billion lei ($5.8 billion) for the rest of 2010, or just under 4 billion a month, provided IMF-led aid is disbursed on time and it rolls over euro-denominated treasury bills due in November.

The finance ministry has so far sold just 982 million lei of the planned 4.65 billion for July, all carrying maturities of one year or less. It tapped the money market but these funds have to be repaid after two weeks.

“All the appetite for riskier assets is going to fall by the wayside,’’ said Neil Shearing at Capital Economics. “The general financing environment is going to become far more challenging.’’

The finance ministry said it hoped to raise money from local euro-denominated issues, including one due next week, and tap international capital markets, but has not given details of its funding needs for the second half.

“The financing needs... are growing and the euro denominated financing from the local market might be a good diversification,’’ said UniCredit’s Rozalia Pal.

Economists estimate the government’s cash reserves at just one or two months’ needs, but it is not in serious danger of failing to meet commitments and has several possible answers other than paying higher yields.Romania’s
debt woe