Most international financial consultants feel that things are worsening in Romania, mostly because of political and economic uncertainty related to this year’s budget. This deterioration will be reflected in forecasts by international institutions. An analyst in the Moody’s rating agency, Kenneth Orchard, told Business Standard that the agency is preparing to revise the data regarding this year’s GDP. Orchard had forecast a 0.3 percent drop in Romania’s economy a few weeks ago, but this data will probably be revised to 0.5 percent, or even less.
“The government has set an extremely optimistic deficit target. A two percent budget deficit will be very difficult to achieve. In case things get out of control, if we see the government loses control over budget spending, if the deficit widens to seven percent or nine percent, then we could expect a downgrading of forecasts and, probably, of rating. For the time being however, we are not considering modifying the rating perspective or Romania’s rating,” Orchard told Business Standard.
The Head of the Emerging Markets Analysis Department of the National Bank of Greece, Michael Loufir, underlines the government’s extreme optimism. “We estimate a 2008 budget deficit of 5.2 percent of gross domestic product. Referring to the set budget deficit target in the current draft budget, we consider this to be difficult, if not impossible to meet,” Loufir said.
Although Romania’s government has adopted positive measures, such as a cut in public sector expenditures, and the directing of larger amounts towards investments, imbalances continue to generate macroeconomic tensions, which reflect mostly in the current account, in fluctuations on the financial market, and in the exchange rate. “The budget deficit target is more than optimistic, but it could be met. The government has begun adopting some good measures. However, there are still major difficulties,” said the Head of Sovereign and Public Finance of the Fitch Ratings company, Andrew Colquhoun.
On the other hand, an analyst of the Vienna Institute for International Economic Studies (WIIW), Gabor Hunya, emphasizes the need for a foreign loan, but believes that this credit will have little impact on the evolution of the exchange rate. Romanian financial advisors had indicated that such a foreign loan would have a positive impact on the national currency.
“The exchange rate is very volatile, and a foreign loan will not save the leu, or lead to its re-appreciation. If we look at Hungary, the foreign loan did not have the anticipated impact, as the forint continues to depreciate,” Hunya added.
