In its latest forecast report for the central and eastern Europe, UniCredit said financing Romania’s budget deficit might be difficult, given that local banks are likely to reduce their exposure to government bonds, while foreign investors are less inclined to invest in the region.
“Western European banks’ deleveraging represents a clear downside risk with some countries more exposed than others,” Gianni Papa, the head of UniCredit’s eastern European division, said. “But according to our baseline scenario, this remains a manageable drag.”
The Italian bank kept its forecast on the economic growth unchanged at 1.4% in 2012 and estimated Romania’s budget deficit will narrow to 2.5% by year-end, from around 4.4% envisaged in 2011.
Romania and the IMF signed in March a EUR3.6 billion two-year precautionary facility, successor to a EUR20 billion bailout package received during 2009-2011. The new deal also includes EUR1.4 billion financing from the European Union and a EUR400 loan from the World Bank.
So far, the IMF approved total financing to Romania worth around EUR1.6 billion under the new arrangement, but the authorities in Bucharest have not accessed any funds.
Romania wants to sell paper worth around EUR2.5 billion in 2012. Deputy Finance Minister Bogdan Dragoi said Tuesday that the country plans to tap into the US debt market for financing, because the European banks are under pressure to raise capital.