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Country Rating and Investment

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Standard and Poor’s analysts improved Romania’s ratings as a result of general estimates that the economy will slightly recover this year, especially due to the expected increase in the foreign market’s demand.
Romania’s ratings for the national and foreign currency short and long term loans remain the same. Standard and Poor’s has also termed as positive the Romanian government’s intention to cut the budget deficit from 7.8% of the GDP, as it was in 2009, to 6.4% in 2010.

The disbursement of the overdue payments of the loan given by the IMF, following evaluations of the way in which the provisions of the stand by agreement concluded with Romanian have been met, is another major factor that experts take into account when conducting such an analysis. The expected measures aimed at diminishing the state salary fund and the reforming of the pension system in 2010 also contributed to improving Romania’s ratings.

Foreign direct investment attracted by Romania in the first 8 months 2009

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Foreign direct investment attracted by Romania in the first 8 months 2009 continue to have a strong macroeconomic impact Foreign direct investment attracted by Romania during January-August 2009 registered a value of Euro 3154 million, fully covering Romania’s current account deficit for the eighth month in a row.

FDI structure for the period referred to was:
Intra-group credits : Euro 1690 million
Reinvested profit : Euro 1464 million.

Current Crisis Indicators

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According to the latest letter of intent made public by the IMF in early October, the budget deficit target for late September the Romanian officials and the Fund’s delegates jointly agreed upon was 6.4 billion Euros, the budget deficit standing at 5.4% of the GDP. In the wake of the IMF’s evaluation mission in late August, for the end of 2009, Romanian officials and the IMF experts agreed upon a new budget deficit target, accounting for 7.3% of the GDP, and related to an 8.5% economic contraction for 2009 and the GDP standing at about 120 billion Euros. Last year, Romania’s GDP stood at more than 137 billion Euros.

In another development, data provided by the Central Bank reveal that the share of the arrears for the loans given to the Romanian population has tripled over the last year to 3.25% (1.55 Billion Euros) after arrears for hard currency credits soared 4.5 times, while domestic currency arrears went up 2.5 times for the October 2008 – September 2009 period. Official data also reveal that the population’s and the companies’ arrears from Transylvanian counties (Central Romania) are the highest across the country.

We should also add that according to an index compiled by the Legatum Institute, an independent world development consultancy and research institution, Romania ranks 48th in terms of population prosperity. The survey has placed Finland on top position, out of a pool of 104 countries world wide, Romania being outclassed by most of the European countries.

The Ultimate Goal, The Euro

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Mugur Isarescu has been appointed for yet another 5-year term in office as Governor of the National Bank of Romania, after the Parliament validated the Central Bank's new Board of Directors. Former Finance Minister Florin Georgescu has been appointed first deputy governor. Attending the Parliament's validation session, Isarescu highlighted the National Bank's forthcoming objectives.

"Rest assured that we are going to promote policies capable of securing stable prices and financial stability in Romania. Also, I do believe in a good cooperation with the Romanian Government, we are going to do what is needed to fulfill the objective of adopting the single European currency in 2014-2015."

Isarescu also said the aim of adopting the European currency could act as a catalyst for a series of coherent macroeconomic policies. According to Isarescu, besides the National Bank of Romania's main objective of adopting the Euro, the National Bank's Board of Directors will have to provide financial and price stability, the sanity of the national currency, of the credit and monetary circulation.

Fiscal Facilities in the Romanian Economy

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Under the pressure of the crisis, the Executive and the National Bank have passed measures meant to encourage economic activity. Therefore, the National Bank of Romania has reduced the monetary policy interest rate from 9.5% to 9% and the institutions' rate of minimum compulsory reserves applicable to hard currency liabilities from 40% to 35%. These measures, which reflect the National Bank's concern with the degradation of the economic situation, are possible because it is efficiently controlling inflation, experts believe.

Read more: Fiscal Facilities in the Romanian Economy

In July, the first tranche of 1.5 billion euros

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The disbursement of the other installments depends on Romania's compliance with a series of measures and goals set by the European Commission. Some of these measures include reducing the budget deficit, freezing salaries and making redundancies in the public sector, increasing pensions in keeping with the inflation rate and increasing the retirement age.

Read more: In July, the first tranche of 1.5 billion euros

"First Home" Programme Gaining Shape

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A programme under which the Romanian state is to guarantee loans for the purchase of a first house might be operational starting July. Like many other former communist countries, since 1989 Romania has been facing a constant housing shortage. And although the construction sector has grown substantially over the past few years, the country is still a long way from solving the problem.

Read more: "First Home" Programme Gaining Shape

The State Budget and Salaries

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Less than two months after the enactment of the state budget for 2009, it has already been subject to its first amendment as a result of the worsening of the economic situation leading to a drop in revenues. The amendment refers mainly to the elimination of salary inflation adjustment, a cut in the expenditure of a number of ministries and the introduction of fiscal measures like the controversial lump sum tax for small businesses.

Read more: The State Budget and Salaries

Foreign Direct Investment in the first 2 months of 2009 – Ascending Tred, Major Macroeconomic Impact

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In the first 2 months of this year, foreign direct investment flow attracted by Romania reached EURO 1374 million, registering a 38% increase as against the same period of last year. (EURO 995 million).

Read more: Foreign Direct Investment in the first 2 months of 2009 – Ascending Tred, Major Macroeconomic Impact

Central Bank Loosens Lending Locks

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After Romanian authorities reached an agreement with the International Monetary Fund and the European Commission, under which it will receive close to 14 billion Euros, the National Bank of Romania Tuesday decided to keep the monetary policy interest rate at 10 per cent, but changed the compulsory minimum reserves of commercial banks.

Read more: Central Bank Loosens Lending Locks

2008 Exceptional year in attracting FDI in Romanian economy

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In 2008, the volume of foreign direct investments in Romania reached EURO 9024 million, registering a 24.4% increase as against the previous year (EURO 7.250 million). Considering the period 1990-2008, the volume of FDI attracted by Romania last year is very close to the peak reached in 2006, with only EURO 36 million less than record value of EURO 9060 million. Furthermore, in 2006, aside BCR privatization, foreign direct investments reached EURO 6900 million, thus it is justified to consider the year 2008 as an exceptional year in attracting FDI in Romanian economy.

Read more: 2008 Exceptional year in attracting FDI in Romanian economy

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