Cabat, Chairman of CFA: Romanian economy calls for a back-up plan

Dragos Cabat, chairman of Chartered Financial Analyst (CFA) thinks Romanian economy needs a back-up plan, drawn by the future government together with National Bank of Romania, on a balanced budget blueprint and designed to support the small and medium sized companies.

“It is required a plan with fiscal measures, drawn together with National Bank of Romania, designed to grant confidence in the banking system, to resume lending activity for companies. Afterwards, multiannual budget plans must be drawn already. A 4-years plan should be enough at this point. A 4-year plan would be more difficult as the government configuration will change”, said Cabat.

According to Cabat, the future government will have to adopt fiscal measures to small and medium sized enterprises, the engine of the economy, that also create many jobs. The system requires measures to balance the budget plan.

“They will have to start infrastructure projects, and there is not enough money. They will have to reduce the budget deficit afterwards. The economy has a cyclic course, and when you have money, it is best to save them, and this is what the government should have done when the budget revenues were mounting, they had to create that buffer fund, for not having an ongoing mounting budget deficit, but a surplus. That surplus could have backed up the economy in the event of an economic reversal like the one we are witnessing now”.

Cabat explained that a high budget deficit would be normal because of multiannual investment plans for highway construction, improvement of education, health and research systems.

Scenario of the Romanian economy for 2009-2010

The economy will surely slow down dramatically in 2009 and even in 2010. Cabat affirms its prior forecast, of 1.5-2.5% economic growth next year. “There is a small possibility of a recession and in 2010 there is the possibility of recording 2.5-3% economic growth”, he added.

A true re-launch, namely an economic growth of 4-5% or even 6% is possible in 2011, according to the chairman of CFA, who added that “Inflation will be high, we will not see deflation; it will remain at 5% or even 5% next year”.

“The positive thing is that the trade deficit will decrease, down to 8-9% next year. All industries will be affected; Romanian exports will be very affected in 2009 due to an EU recession. We will also witness a strong adjustment on imports which will fall sharply once with the Romanian consumers’ purchase power. I see a downslide of the local currency (4.1-4.2 ron/euro in March 2009) which might lead to a trade deficit of only 8-9%, whereas it will be a sharp structural change of Romania’s trade and consumption,” Cabat added.

According to Cabat, trade deficit will have to be lowered, because our country cannot afford to finance a high trade deficit. Trade deficit is financed from external loans, and external loans are very expensive for Romania due to the downgrade of the country rating, but also because the entire world is experiencing a liquidity drought.

“The world is looking at Romania, and sees the problems it is going through, and refuses to lend us money, or it will lend us very expensive money, therefore, we cannot afford a high trade deficit. Even politicians have reached an economic realism, have postponed the raise of pensions, they will likely postpone the raise of wages, because there is no money to give away from”, said Cabat.

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