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May 11, 2021

Romania’s economic growth expected to be negative in the following quarters

Jeffrey Franks, head of IMF mission in Bucharest, was keen on specifying that a difficult year should be expected ahead, particularly for employees.

Romania’s economic growth will be negative in the next two – three quarters and a recovery is expected at the end of the year or early next year, Jeffrey Franks, head of the International Monetary Fund (IMF) mission in Bucharest, said on Friday.

These remarks add to those outlined on Thursday by the IMF representative for Romania and Bulgaria, Tonny Lybek, who said that the upward trend for the economic growth would be seen “only” in the second half of 2010.

At the same time, Franks indicated that a severe drought this year would have an adverse impact on GDP, but mainly in relation to the social aspects, namely on small farmers. In the first quarter, GDP contracted by 6.4 per cent compared to the similar time period of the previous year and it decreased, based on seasonally adjusted data, by 2.6 per cent as against the fourth quarter.

“The first quarter was worse than we expected,” Franks said. He specified that in calculating the gross domestic product, IMF considers comparison against the previous quarter. “We have not reached the bottom, but the economy decrease shall be lower and lower, which may indicate a recovery,” Franks said. At the same time, the IMF official outlined that unemployment would pose an upward trend, within a recession context. “A difficult year should be expected ahead particularly for employees, until the end of the period,” Franks said.

The targets remain unchanged

He said that the issue revising the quarterly budgetary deficit was out of question, following the decrease of the economy beyond expectations in Q 1. On the other side, the adjustment of the current deficit account was “good news,” but this was an outcome of an export boom but was a result of decline in imports, Franks added. He mentioned that 2009 would be a difficult year, even after the signing of the agreement with the IMF, but he specified that positive results could be noted, such as the decrease of the risk premium and a lower pressure on the exchange rate.

Lazea: Budgetary deficit continues to be a “burden”

The low shares of exports and non governmental lending within GDP and the low dependence on energy imports are assets of Romania for the economic crisis, and at the opposite side, there is a high budgetary deficit, “a burden,” BNR head economist Valentin Lazea said while at Targu Mures. He added that unfortunately the three assets “are not very well known” by the rating agencies, which have their eyes on the region and not closely to a country, a reason because of which two of three granted lower rating levels to Romania.

BNR head economist said that Moody’s rating agency did not decrease Romania’s rating in the past two years, which was a correct procedure, since such a measure would have meant being below the investment grade, in spite of the actual context.

Banks need to continue recapitalization

The banks will have to bring, in the second stage, the recapitalization requires by the stress tests conducted until March 2010, considering that the first stage will last until September 2009, and the volume amounts to EUR 1 bln, according to the IMF mission head in Romania. In this case, BNR asks for capital raises in case of 12 banks from Romania, amounting to RON 4.15 bln., following the stress tests applied at IMF request, according to sources from the banking market, HotNews informs.The banks could bring the additional capital resources in two installments, the first until September 30, 2009, and the second one, until March 31, 2010.

“We reached an agreement with the banks stating that they would provide the additional capital until September 2009, based on calculations conducted for this year, in order to secure a capital adequacy rate to at least 10 per cent. Until March 2010, they will have to bring the second instalment,” Franks said.

BNR head economist, Valentin Lazea, also said that the charging of the “Robin Hood” duty was not an appropriate decision, since this would result in several foreign banks choosing to leave and it would also mean a breach in the freedom of the capital account. He added that a solution could be for BNR to be vested by the Parliament with increased prerogatives in relation to the commercial banks.

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