Georgescu said the report highlights rising risks stemming from international factors and increased internal imbalances stemming from Romania’s widening twin deficits. The rising cost of financing for the current account and budget deficits is a moderate systemic risk, he said.
Romania’s budget deficit ballooned to 2.8% of the gross domestic product in the first ten months of the year, 0.6 points higher than in the same period in 2018, and Romania’s cash deficit is seen at 4.43% of GDP at the end of the year. The current account deficit is set to reach 5.1% of GDP in 2019. Romania’s twin deficits are the highest in the European Union.
“These evolutions constitute a considerable deviation from the path required to reach the medium term objective of a structural deficit of 1% of GDP and for the budget deficit to stay within the EU limit of 3% of GDP,” said Georgescu.
Increased social assistance spending, estimated to reach 14.3% of GDP at the end of 2022 from 10.7% of GDP in 2019 is another troubling factor.
An external risk is a decline of investor confidence in emerging economies, a risk also outlined by the International Monetary Fund and the European Central Bank. Economic uncertainty is on the rise internationally. In the euro zone, economic slowdown stemmed from lower exports and investments, reflecting bigger than anticipated slowdowns in Germany and Italy, which are Romania’s main trade partners.
Another risk is Romania’s growing borrowing costs coupled with its increased need for financing. Yields on Romania’s five-year bonds averaged 4% in 2019, compared with 1% for Hungary and 1.7% for Poland. Romania’s financing needs are seen rising 28% at the end of 2019, the highest level in the past decade.