Loading ...Vice-governor of Romania’s Central Bank (BNR) Cristian Popa said, late on October 28, that the decision of Standard & Poor’s to downgrade the rating of Romania is hard to assess, he stressed that the Romanian economy is not more vulnerable than other economies comparable with it.
“I believe the decision has been hard to anticipate, because, although there are some sure vulnerabilities, which the Central Bank stressed, and they regard a relatively high current account deficit, a rapid advance in crediting, in hard currency, in particular, other parameters of the economy, nevertheless, a general look shows that the Romanian economy is not more vulnerable than other economies from comparable groups of countries, “ said Popa.
The BNR official said that the evaluation agency did not include many elements in its argumentation for the downgrading.
“I stress that an evaluation of country risk, a rating, regards the capacity of the sovereign, of the country in question as a sovereign entity to honour its payments. In all this text, this element is mentioned not even once, the text says that a quite sudden slowdown in the economy is possible in Romania, because of resort to an uncertain foreign environment, of foreign funding with high costs and with volumes that can vary, because of high, growing indebtedness, “ said Popa.
“I stress that an evaluation of country risk, a rating, regards the capacity of the sovereign, of the country in question as a sovereign entity to honour its payments. In all this text, this element is mentioned not even once, the text says that a quite sudden slowdown in the economy is possible in Romania, because of resort to an uncertain foreign environment, of foreign funding with high costs and with volumes that can vary, because of high, growing indebtedness, “ said Popa.
What the analysts from Standard & Poor’s did not say regard Romania’s public total debt, which is estimated this year at 12% of GDP, or around 4.5% domestic public debt, and the rest, foreign debt. The figure was slightly higher last year, of 12.4%, it stood at 12% in 2006, so the debt has been below 13%, starting in 2006, and below 20%, starting in 2004. So, the performance is not temporary, the trends are lasting for long. The figure is much better than the comparable figures for many countries in the region, and even for many of the EU new entrants, Popa explained.
“The debt of the private sector is high, but not enormous, the total private foreign debt stands at 42.4% of GDP, of it the medium and long-term foreign private debt stands at 26.8%, and that on short term, most of it private, stands at 15.4% of GDP. The latter, which had a growth rate of 60% last year, slowed down substantially this year, we have data for the first eight months.
Growth stood at half of that of last year, it stood at 30%, and the short-term debt, and this is the best signal, slowed down from some 60%, to some 6%, so growth slowed down ten times. This shows that the private sector, although it has used more funds, it has used more sustainable funds, whose return is not a matter of discretion from the creditor, the money does not need to be returned immediately, at a moment when the financial turbulences are complicating the processing of potentially rolling this debt. This is not part of what S&P said, “ Popa explained.
He criticized S&P for speaking of Romania’s vulnerability because of a somehow high deficit of the current account.
“The text from S&P reads that Romania’s vulnerability is very high because of a high current account deficit in GDP. Its correcting has already started, the process is gradual, exactly for it to be sustainable. We don’t want to see forced corrections of big size, they risk to be disordered sometimes. Our estimate for the end of this year is of 13.3% current account deficit in GDP, the current account deficit in the first eight months, compared with the first 8 months last year, rose 1.55%, which is much lower than a rise of 60% last year.
“The text from S&P reads that Romania’s vulnerability is very high because of a high current account deficit in GDP. Its correcting has already started, the process is gradual, exactly for it to be sustainable. We don’t want to see forced corrections of big size, they risk to be disordered sometimes. Our estimate for the end of this year is of 13.3% current account deficit in GDP, the current account deficit in the first eight months, compared with the first 8 months last year, rose 1.55%, which is much lower than a rise of 60% last year.
So, the correction takes place on the basis of a swifter growth than that in imports. A possible lowering of demand for Romanian exports to the EU would, of course lead to a slow down in the Romanian exports, but, at the same time, an ordered decline in crediting would hit Romania, notable consumption demand, and crediting in hard currency, so that imports would see an important ordered correction. Our estimate, now, is that governmental crediting will grow some 15%, in Romania, in 2009,” stressed the BNR official.
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