Romania is now better positioned fiscally than in 2008, when Lehman Brothers collapsed, as it has made a series of fiscal adjustments, succeeding in narrowing the budgetary gap and slow down public debt growth.
The adjustment process needs to continue, though, and the upcoming 2012 election year is also sending signals of concern, given Romanian politicians’ previous election euphoria episodes, which led to subsequent costly corrections, which weighed on the population.
Romania needs to tightly keep to its budgetary gap target amid these tough financial market conditions and really diminish state costs. “We need to understand that we can no longer afford budgetary imbalances and keep to narrowing the budgetary gap, which is put at 4.4% of GDP, and need to see public debt is blowing up globally,” said Adrian Vasilescu, BNR governor adviser.
The government ended the first six months with a gap of 2.02% of GDP, but the question is what has “been hidden under the carpet” for 1H, given state-own companies’ arrears and divergences on the Health budget, which led to the resignation of the minister.
The situation is the more complicated as banking analysts have already announced they considered revising 2012 economic growth downwards.
Last weekend, foreign state authorities and central bank heads sent messages meant to calm down markets. In Romania, the only message from officials came from Andreea Vass, the prime minister’s economic adviser. “External weaknesses are better managed now. Public debt, while larger now than in 2008, is not a weakness. Total short-term external debt matters as a weakness. From this point of view, the agreement with the IMF is a safety net,” said Vass.
Can this dramatic decline of global stock exchanges spread toward the financial-banking system, as it happened in 2008? “This is out of the question. I can say there’s a specific paradox in Romania. We have an economic downturn, without a financial crisis and there are no signs we will face a financial crisis”.
What will be the impact at the level of the Romanian economy? Given Romania’s dependence on foreign markets, exports are the channel the crisis can be felt through. As demand from the main commercial partners falls, exports, the main engine driving Romania out of recession, are expected to slow down.
Romania has this year come to be better positioned than many euro zone countries, particularly following Fitch’s decision to raise its rating. However, should international financial market’s risk perception about Romania worsen, costs are set to rise. And a higher level of CDSs will have a negative impact over external borrowing.
Radu Gratian Ghetea, president of the Romanian Banking Association, does not see an impact of the crisis over the Romanian banking system as Romanian banks do not have any exposure to US securities.
(English version by Catalina Apostoiu; Editing by Ioana Tudor)