The effects of the British vote to leave the European Union are manageable for Romania, the Ministry of Public Finance asserted in a release to Agerpres on Friday; foreign currency reserves are available, and international borrowing can be postponed until markets stabilize.
Finance Ministry reassures on manageable Brexit effect
“The Ministry of Public Finance monitors closely the evolution of financial markets on European and international levels, and is permanently in contact with its European partners and with the international and national financial institutions. On the short term, we are witnessing volatility on the national, regional and international financial markets. Nevertheless, the Romanian state has a substantial reserve of foreign currencies, which could be used to attenuate the risks resulting from the increase of financing costs, offering the flexibility of adapting the size of sovereign bond issues in the forthcoming period, until markets are stabilized,” the document reads.
The ministry also mentions Romania’s strong economic performances: 4.3 percent economic growth in the first quarter of 2016; balanced budget execution in January-May; public debt among the smallest in the EU; strong downtrend of the private debt and borrowing in foreign currencies. Consequently, it expects a moderate long-term impact of the Brexit on the main economic indicators, but warns on the need for prudent fiscal and budget policies and calls for responsibility in promoting measures that could impact the budget targets and worry the financial markets.
On a EU level, the Brexit compels to dialogue on the practical means of managing the impact, the release adds. “Romania will actively participate in these discussions, having an important say from the perspective of all resulting implications. One of the effects taken into account is the impact on the EU budget, to which the United Kingdom contributes significantly.”
BNR’s Suciu: Romanian leu less depreciated than other currencies in the region
Romania’s leu exchange rates dropped less than those of other currencies in the region following the UK referendum for leaving the EU, National Bank of Romania (BNR) spokesman Dan Suciu noted on Friday. He explained that the impact of the vote for the Brexit was milder thanks to the central bank’s awareness of this risk, and to the smaller size of Romania’s financial market. BNR insists on every occasion that it has the instruments to intervene on increased volatility of the national currency, he added for Agerpres.
“The Friday’s depreciation of the leu was predictable, because the event occurring after the vote in the British referendum is an event of significant risk. This risk had been defined by the National Bank in its Financial Stability Report in April and in its annual report released a couple of days ago. Thus, without saying it has been anticipated, it has been taken into account. But we saw the volatilities on our market, which although existing did not exceed the calculated parameters in a worrisome way. Indeed, we saw the noon exchange rate – 4.5366 lei/euro – that indicates a smaller depreciation than in the case of other regional currencies that underwent the same process,” Suciu explained.
Besides the leu’s position, not on the front line of volatilities, the BNR also has its monetary policy interest rate, its foreign currency reserves, and the possibility to intervene adequately in the market, and the market is aware of these facts, Suciu insisted.
According to him, the BNR expects the volatility to continue in the near future, but within manageable limits. “Obviously, we have a horizon of uncertainties in the forthcoming period. At least from an institutional point of view, a negotiation process will follow, which cannot calm down the markets,” he said.
As regards the higher quotation of gold, the spokesman asserted it was expected, as bullion and the U.S. dollar are haven investments in uncertain times in Europe.
The central bank, however, will have to analyse and weigh very carefully its monetary policy decision expected next week, said Suciu.
BVB CEO Sobolewski: Brexit impact, very diverse, not always negative
The impact of Brexit is very diverse and not always negative and these days the stock markets are good for those who are buying, Bucharest Stock Exchange (BVB) CEO Ludwik Sobolewski told Agerpres on Friday.
First, he said, it confirms the authenticity of the saying that the only thing constant in life is change. Secondly, in respect to the world of investment, the inevitable negative implications in terms of EU policy may produce a change in the attitude of investors and financial institutions. The reasoning, points of view and opinions, he said, can be shaped up more on a case-by-case basis and not in a restricted set of global indicators, the latter being typical for global capitalism, which could be a good change for countries such as Romania. Thirdly, he said, London’s part as global financial centre will be consolidated, because the City will not be submitted to the EU’s bureaucratic constraints and to the overwhelming direction of over-regulation. In short, said Sobolewski, the Brexit impact is very diverse and not always negative.
Trade on the Bucharest Stock Exchange (BVB) opened Friday on a falling trend, with the BET index, reflecting the developments in the 10 most liquid stocks, dropping 6.12 percent, about 15 minutes into the trading session. Around noon, the BET index bounced back to a slightly over 3 percent decline.
ANEIR’s Ionescu: We will be solidary in wins and losses with other member states
The decision of the United Kingdom to exit the European Union will lead to a crash of the British pound, reason for which Romania’s exports will become non-competitive, yet imports will grow, said, for Agerpres, Mihai Ionescu, the Secretary General of the National Association of Exporters and Importers from Romania (ANEIR).
“In what regards us, we will be solidary with the other member states in wins and losses, following this decision by the British, in the sense that on the short-term we will see a crash of their national currency, the pound, which will make Romania’s and other countries’ exports to England non-competitive, if paid in pounds, in the sense that, until now, for 100 quid a Romanian exporter would receive at the bank 600 lei, starting tomorrow or today he will receive 400-500 lei. So they will not sell goods in the UK. Exports will drop, yet imports from England will be stimulated. Apparently for us it’s a good thing, but we do not know if the British would be willing to have their shelves empty, if they will not accept price hikes, depending on the evolution of the pound sterling. This applies on the short-term,” Mihai Ionescu explained.
He emphasized that the UK will undoubtedly try to negotiate with the EU a free trade agreement to hold on to the advantages of the free circulation of goods.
In his opinion, the vote regarding the UK’s exit from the EU expresses the state of mind of a former large colonial power, who didn’t accept the “yoke” of the European Union which implies certain freedoms of member-states be hindered.
He believes that the Britons have given such a vote due to discontent firstly regarding free movement of persons and the rules set down by Brussels, “who is trying to lay down the economic agenda and other components pertaining to the independence of each member-state.”
Greg Konieczny: Fondul Proprietatea further listed on London Stock Exchange
Fondul Proprietatea will further be listed on the London Stock Exchange, but as investment manager Franklin Templeton Investment Management Limited Bucharest Branch is an entity of a company regulated in the UK, this arrangement might require reassessment, said Fondul Proprietatea manager Greg Konieczny.
Although this is unprecedented for the UK, we don’t see any material impact on the fund. As far as the portfolio is concerned, the fund has no investment in the UK, nor any indirect material exposure to the UK economy. The Fund will further be listed on the London Stock Exchange and investors will be able to further invest in the Fund through GDRs. The Luxembourg-based Franklin Templeton Investment Services S.A.R.L. is the fund manager and sole administrator and its delegate – investment manager Franklin Templeton Investment Management Limited Bucharest Branch – is an entity of a company regulated in the UK, and therefore we may have to reassess this arrangement, but it is still too early to know if this will be necessary, said Konieczny.
He explained that a long period of negotiations between the UK and the EU will follow, and that throughout this period the UK will remain a member of the EU and will retain all the rights deriving from this capacity.
AOAR’s Pogonaru: Romanian business less impacted by Brexit than multinational corporations
The Brexit might have a lesser impact on Romanian businesses than on multinational corporations because the former are less connected to export markets, president of the Romanian Businesspeople Association (AOAR) Florin Pogonaru on Friday told Agerpres.
“I want to say that the Romanian business has not that critical mass, it lacks the necessary weight to have been linked to the UK. The Romanian business is not that tightly linked to export markets as Romania-based multinational companies. We must look at the extent Romanian multinational companies are affected to know what the impact on Romania is,” said Florin Pogonaru.
He argues that the momentary surge in emotions could trigger a negative effect of the Brexit.
“Romania will be adversely influenced because our growth engine are exports. To the extent that our exports are mainly directed towards EU markets, our exports will have problems. So our exports will probably be affected too. But this here requires more nuanced thinking. We discuss in fact the multinational companies that produce and export from Romania (…),” Pogonaru explained.
As for the Romania-based multinational corporations, he said he doesn’t think there would be fundamental changes and that this all depends on what happens in Europe.
Pogonaru doesn’t believe that there will be a massive impact on the Romanian workforce in the UK, that remittances from this country will immediately plummet, or that restrictions will be immediately set in place for Romanian workers, as there will be other priorities for the UK to solve in the next two years.
ING: If UK’s decision weakens EU in long and medium term Romania will be negatively impacted
Following UK’s vote to exit the EU, the national currency, the leu, traded for a short time at 4.5600 lei / euro, its lowest exchange rate since March 2014; the leu briefly plunged to this level in early 2016, reads a report of ING Bank Romania.
According to the document, during the day the national currency might trade in the range 4.5350 – 4.5600 lei / euro.
“Following the vote for the UK’s exiting the EU, the RON to EUR exchange rate stood for a short time at 4.5600 (the lowest level since March 2014, also reached in early 2016). (…). However, the currencies in the region plunged even more, which could suggest that the central bank intervened to ease the pressure; next week’s data on the currency reserves of the National Bank of Romania will provide more clarity on this aspect. We expect today’s trading session to be volatile with the domestic currency trading in a range of 4.5350 – 4.5600 lei per euro, but we underscore that the short-term outlook for the leu’s markets are unclear until the waters calm down,” the report says.
As for the Brexit, the ING economists argue that its macroeconomic impact on Romania should be relatively low because the growth of the country’s GDP is mainly linked to private consumption, but also because of the reduced direct connections with the British economy.
“However, in the medium term, the impact would not even be that insignificant. For instance, the Ministry of European Funds estimated that the nominal GDP was 10.6 percent higher in the 2007-2013 financial framework thanks to EU funding, while the UK contributed 11 percent to the Union’s total budget; however, we underscore that there are a lot of uncertainties at this time about how things look now in this respect. Moreover, if UK’s decision weakens the EU in the medium and long term, this could have a negative impact on Romania at both economic and geopolitical level,” reads the bank’s analysis.
Regarding the impact on the monetary policy, the ING Bank economists say that this situation could be a strong argument for the National Bank of Romania to postpone for Q1 2017 the start of tightening its monetary policy (from the bank’s current estimate set for November 4), but much also depends on the reaction of the ECB and of the regional central banks.
UK, fifth largest export market for Romania
The United Kingdom was the fifth largest export market for Romania in the first quarter of this year, the total volume of exports standing at 649.9 million euro, a 15.3 percent increase compared to the same period of last year, data from the Ministry of Economy reveals.
In what regards imports, they clocked in at 386.1 million euro, a 5.72 percent increase. As such, Romania has a commercial deficit regarding the United Kingdom of over 263 million euro, an 18.5 percent increase compared to the first quarter of 2015.
“In the first three months of 2016, the top ten destination countries for Romanian exports were: Germany (with a share of 21.3 percent of Romania’s total exports), Italy (12.4 percent), France (7.4 percent), Hungary (5.1 percent), the United Kingdom (4.7 percent), Turkey (3.4 percent), Bulgaria (3.1 percent), Spain (3.0 percent), Poland (2.9 percent) and the Czech Republic (2.7 percent), the total tally for these countries being 66 percent of exports,” the Ministry of Economy informs.
On April 30, 5,251 firms with British capital operated in Romania, the total value of the registered capital being over 1.01 billion euro, the United Kingdom being on the tenth position in rankings in this regard, according to data from the National Trade Register Office (ONRC).