Friday, May 15, 2009

Romania FinMin sees sign of economic improvement

BUCHAREST, May 14 (Reuters) - The Romanian economy began showing signs of improvement in April, in part thanks to budget reforms, Finance Minister Gheorghe Pogea said on Thursday, adding he hoped rating agencies would soon take note.

Pogea's comments followed a decision by Standard & Poor's to affirm Romania's 'junk' rating and a negative outlook, due to high risk of capital flight and concerns that budgetary reforms will be stifled ahead of an upcoming presidential election.

Despite the rating agency's concerns, Pogea said the country's battered economy would soon be revitalised, as Bucharest's centre-left government overhauls public finances and investors shake off their grim outlook on Romania.

'The first positive signs have surfaced after four months ... We do hope that rating agencies will take note,' Pogea told Reuters by telephone.

Late in 2008, as the global crisis engulfed eastern Europe, Romania became the first European Union member to see its debt downgraded to 'junk' as rating agencies fretted over the country's twin budget and trade deficits and its high dependence on foreign cash.

S&P said on Thursday those concerns remained, despite Romania's success earlier this year to secure a 20 billion euro aid package from the International Monetary Fund, the EU and other financial institutions.

'In our view, the Romanian economy continues to face large macro-financial risks due to the sharp fall in external demand,' S&P's credit analyst Marko Mrsnik said in a statement.

'A particular risk is that of capital flight in an environment of dramatically changed risk appetite,' the agency said.

S&P forecast Romania's current account deficit, a key economic headache, narrowing to less than 6 percent of gross domestic product (GDP) from more than 12 percent in 2008.

POLITICAL CONCERNS

Commenting on the Romanian government's hopes that IMF aid will help the country ride out global turmoil, the agency said fiscal reforms envisaged by the programme were at risk because of a deep economic recession and lack of political will.

'The commitment to implementing the ... programme is likely to be tested ... due to the potential for intra-coalition disagreements over the next two years, particularly in light of the upcoming presidential election,' it said.

Pogea's government has insisted on its support for fiscal restraint but its resolve is likely to be tested in coming months as the centre-right opposition jockeys for votes by calling for more social protection.

Despite such concerns, market sentiment towards Romania has improved in recent weeks, with the leu currency gaining ground from a record low hit against the euro in January.

A finance ministry official signalled earlier on Thursday Romania may take advantage of the improving mood to tap the market with a new Eurobond issue.

'Markets have given a higher grade to Romania recently and I think the report will have a limited impact on Romania,' said Melania Hancila of Volksbank in Bucharest.

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