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Moody’s on the risks that challenge Romanian economy

A recent report by Moody’s rating agency highlights a series of risks that challenge Romanian economy. According to the document, the government’s fiscal policies, the widening current account deficit and surging credits are the major sources of risk.

The most significant threat is the high current account deficit, specifically the imbalance between small exports and massive imports, as well as between foreign currency inflows and outflows. According to Moody’s, "the current turmoil on international markets has heightened chances that a foreign shock causes trouble in the next 12 or 18 months." Romanians raise ever more money in loans and demand already exceeds the offer, that could drain off all of a sudden because of the international crisis, with negative effects on economy. Yet Moody’s also considers that both the government and the banking system could "resist a moderate economic shock." The representative of the Association of Financial-Banking Analysts Ionut Dumitru says that local banks are aware of the danger and already took preventive measures. “The risk is that – on the side of credit – the population or the companies take too high risks. But I believe that in the last period banks have had a quite prudent attitude in Romania, with quite well conceived risk strategies, so that I don’t think there will be problems with the credit portfolio. I think the banks are prepared and most of the credit institutions with foreign shareholders and with a solid international reputation should not encounter problems with risk management,” Ionut Dumitru told BBC. The representative of the Association of Financial-Banking Analysts adds that unfortunately, only 40 pct of foreign currency inflows were directed in investments, which proves that the current account deficit is unhealthy. Financial analyst Ilie Serbanescu shares the same opinion."I want to point out that Bucharest concentrates over 70 pct of the country's current account deficit that materializes in cars, villas. You can call this prosperity, but in wild capitalism, not in European–type capitalism,” said Serbanescu. Just like the previous documents, Moody’s report criticizes the government’s fiscal policies and its proneness to rising wages past labor productivity, supplement pensions and outlays that do not finance transportation networks or high-standard production - that is exactly the elements that would bring along a solid economic growth. However, the rating agency notes that "Romania’s EU accession has sped up the rise in investments and macroeconomic restructuring", that need to continue. Not only international financial institutions like the World Bank or the IMF, but also the National Bank of Romania pulled similar alarm signals. BNR officials asserted that payroll slippages and the current account deficit – that was 14 pct of the GDP in 2007 – are the major challenges at this moment. Sursa: http://www.actmedia.ro

Tags: account deficit moody current economy risks bnr

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