Excesses in the past must be fixed

The country needs to correct the excesses in the past. “Romania’s biggest excess was this current account deficit that climbed up to 12%. The fact that we afforded to run a deficit 10% higher than last year was an excess”, NBR governor Mugur Isarescu said.

The current account gap narrowed 75% in first five months this year. The National Bank of Romania expects the external gap to drop further to 5-6% by year-end, from 12% a year earlier.

“Romania is headed toward what’s reasonable and sustainable”, said the governor, adding that he expected the indicators that led to a sovereign rating downgrade to improve.

As Isarescu commented, NBR does not “encourage a depreciation of the exchange rates”, as it would steepen the reduction of the current account deficit. The stability of the national currency is given by the Romania’s external economic fundamentals.

“We don’t encourage a depreciation of the exchange rates as to adjust the current account deficit”, said Isarescu, after stressing that the reduction of external gap “seems already excessive, especially if there is no end in sight for that”.

Public consultation on government spending

The governor of the central bank calls for a public consultation on public spending, as the current structure cannot help the economy grow.

“A high budget gap is certainly not what we seek for, but in a faltering economy, it cannot be avoided. However, it must be associated with a cost-effective and efficient public spending”, Isarescu added.

In mid this year, the budget gap reached 2.7% in the country’s Gross Domestic Product, to 24.3 bn lei. Under the IMF arrangement, Romania agreed to contain this year’s deficit at 4% of GDP. However, the Fund may revise the target range at 7%.

“We rely on the arrangement with International Monetary Fund and European Commission and its positive outcome” said the head of the central bank.