Consumption in Romania should be reduced by 5-6 billion euros in 2009, says Lucian Croitoru, adviser to the Governor of the National Bank of Romania (BNR), and his argument is backed by other financial experts.
Croitoru says that a strong and orderly adjustment of the current-account deficit by 4% of the Gross Domestic Product (GDP) is highly necessary in an attempt to sugarcoat foreign investors out of their decisions to pare down investment in Romania. He also says a 4%-ofthe-GDP cut in the current-account deficit would mean a reduction by 5-6 billion euro in consumption.
Shrinking the external deficit by this percentage would lend more credibility to Romania’s policies and lead to a smaller cut in external financing, lower depreciation rates of the local currency and an economic growth of nearly 5%.
Croitoru explains that this would be the hard scenario that would boost investor’s trust that the Romanian economic policies are consistent. Amidst the ongoing global crisis, the appetite of investors and the resources that are ready to invest in Romania are dwindling, with a high external vulnerability because of a high current-account deficit. This, he says, would require strengthening fiscal policies and adjusting foreign unbalances.
Croitoru explains that this would be the hard scenario that would boost investor’s trust that the Romanian economic policies are consistent. Amidst the ongoing global crisis, the appetite of investors and the resources that are ready to invest in Romania are dwindling, with a high external vulnerability because of a high current-account deficit. This, he says, would require strengthening fiscal policies and adjusting foreign unbalances.
Croitoru argues that a pessimistic scenario in which the deficit would be curtailed by only 2.5% of the GDP, a 1.5% fall in the government deficit and a 1% shrinkage of the private sector will not suffice to convey a message of confidence to investors, which would further deteriorate Romania’s foreign standing.
In such scenario, external financing would be lost to a large extent, economic growth would stay at below 3% and the local currency, the leu (ROL) would fall in value to RON 4.3 to the euro, which might require an import of credibility and even an agreement with international financial institutions.
Head of Capital Markets Deloitte Balkans Toni Iordache says if the leu falls against the euro to RON 4 to the euro, the costs of forex-denominated loans might increase by 25-45%.
Head of Capital Markets Deloitte Balkans Toni Iordache says if the leu falls against the euro to RON 4 to the euro, the costs of forex-denominated loans might increase by 25-45%.
In the scenario with a 4% of the GDP correction, given an estimated 3.5% Government deficit, Croitoru believes a cut by 2.5% of the GDP would be needed in 2009, to 1% of the GDP, which would be the contribution of the public sector to the downward adjustment of the current-account deficit. The remaining 5% would be provided by the outcome of the private sector adjustment.
“If the external deficit is not sufficiently adjusted, a significant loss of forex reserves will ensue.
External financing will be increasingly more reduced. In the case of insufficient current-account adjustments in the public sector we will probably witness the market do the adjustment in a much more aggressive manner,” says Croitoru, a former Romania officials with the International Monetary Fund (IMF). Given the circumstances, an agreement with the International Monetary Fund or the Central European Bank might become necessary.
External financing will be increasingly more reduced. In the case of insufficient current-account adjustments in the public sector we will probably witness the market do the adjustment in a much more aggressive manner,” says Croitoru, a former Romania officials with the International Monetary Fund (IMF). Given the circumstances, an agreement with the International Monetary Fund or the Central European Bank might become necessary.
The 2009 Government deficit might go up to 6.3% of the GDP, according to the 2009 draft Budget and the measures included in the anti-crisis plan, and that would require a 5.3% adjustment, argues Croitoru.
Budget unbalance should thus be cut down to 1% in 2009 in order to get a 4%-ofthe-GDP current account deficit.
Budget unbalance should thus be cut down to 1% in 2009 in order to get a 4%-ofthe-GDP current account deficit.
The incoming Government will have to better analyse how the 2008 Budget eroded and anticipate the effects on Government revenues in 2009. The estimated Government deficit rose to 2.9%, January-to-November, on drastic falls in October and November revenues.
In order to boost Government revenues, Biris Goran law firm partners Gabriel Biris says, increasing the main tax categories is not the only option, as revenues collected might also increase by the Government rethinking its tax policies and collection to close some loopholes and stimulate tax servicing.
In order to boost Government revenues, Biris Goran law firm partners Gabriel Biris says, increasing the main tax categories is not the only option, as revenues collected might also increase by the Government rethinking its tax policies and collection to close some loopholes and stimulate tax servicing.
Loading ...
Comentează acest articol