RBS: Romania Falls Out Of Default Risk Countries Category In ’09

RBS report is based on an IMF model used to try and predict sovereign debt crisis, across a range of Emerging market economies. The model identifies 8-9 economies in Emerging Europe as being potentially vulnerable to sovereign debt crisis, due to wide current account deficits and excessive foreign borrowing.

According to RBS, the inclusion of Hungary, Latvia, Romania and Ukraine as potential risk countries in the bank’s report tallies with the fact that all four have been forced to go to the IMF for emergency funding over the past year.

"Romania falls out of the risk category in 2009, however, reflective of the fact that its current account deficit, and hence external financing requirement is narrowing rapidly as domestic demand deflates," the report stated.

Bulgaria, Estonia, Croatia and Lithuania are identified as potential risk countries, albeit none of the above have thus far gone to the IMF for financing.

Also, RBS included Poland in the risk category, to reflect its relatively high external financing requirements, and modest foreign currency reserve coverage. RBS noted that Poland has decided to secure an FCL (precautionary) funding facility from the IMF earlier this year.

Eastern European states got external financing packs totaling EUR90 billion since September, to help them cope with the international financial crisis.

Romania agreed end-March with the IMF, the European Commission and other financial institutions a EUR19.95 billion economic program supported by a EUR12.95 billion loan under a two-year Stand-By Arrangement from the IMF.