Fin Min: Romania Needs To Cut Curr Acct Def For Higher Ratings

The document reveals that, given the deepening of the international financial crisis, a prudent fiscal policy is compulsory to also reduce the budget deficit and improve the budget revenues collection.

 

“Romania has to unroll policies that will permit the gradual and predictable reduction of the current account deficit (…). The efforts will be aimed for a gradual correction of the current account deficit, through a balanced monetary, revenue and fiscal policy mix, and the acceleration of structural reforms that will lead to an increased labor productivity,” the ministry document, obtained by MEDIAFAX, said.

 

An improvement of the business environment is compulsory to attract more foreign investments. It will also lead to an inflation decrease, while maintaining a high economic growth.

 

“In Central and Eastern Europe, the economic growth is still solid, but there are signs that it can be affected by the financial crisis, as it depends on attracting foreign capital,” the document said.

 

The Finance Ministry sees the increase of financing costs, a decrease in exports, lower foreign investment and a heightening in external financing difficulties, due to a lack of liquidity in the banking system, as main possible effects of the global financial crisis in Romania.

 

End-October, S&P downgraded Romania's rating to "junk status", citing risks to the country's economy due to high private-sector leverage and dependency on an uncertain external financing channel.

 

Ratings agency Fitch also lowered, on November 10 the sovereign ratings on Romania by two notches, citing vulnerabilities in the emerging markets, spurred by the global crisis and the countries’ high current account deficits.

 

Moody's predicts a moderate contraction of Romania's economy in 2009, but kept the country's ratings unchanged.

 

Romania’s current account deficit soared 14.75% on the year in January-September period, to EUR12.7 billion, from EUR11.07 billion in the same period a year earlier, driven by a wider trade deficit.

 

In the first nine months of the year, the current account deficit was 56.6% covered by foreign direct investments which stood at EUR7.2 billion. The Romanian authorities see FDI at EUR10 billion at the end of the year.

 

The National Bank of Romania’s first-deputy governor Florin Georgescu said recently that Romania’s economic growth will stand next year at 4-4.5%, while estimations for this year’s current account deficit stand at 13.6%-13.8% of the GDP.