Renaissance: Romania To Become One Of Europe’s Safest Credits

05.11.2011 By Florentina Dragu

Romania is poised to become one of the safest credits in Europe, due to its modest foreign debt, a low current account deficit and undergoing economic reforms, a report from Renaissance Capital showed Wednesday.

Despite Romania's foreign debt rising rapidly up to 2008, its absolute levels of debt remain low enough, meaning there is a good chance that the country will experience another period of strong growth during 2012-2015, said Charles Robertson, global chief economist and head of macro-strategy at the investment bank.

"The highly effective implementation of International Monetary Fund recommendations in Romania supports our view and implementation of these recommendations are expected to continue under the new precautionary standby agreement," Robertson said.

He added reforms were needed in Romania, after the former government allowed massive salary increases and a credit boom in 2006-2007, which led to a widening of the current account gap to 14% of the gross domestic product in 2008.

"The current government has taken away two months of salaries from the public sector and has also reformed the pension system, thereby helping slash the current account deficit to 4% of GDP in 2010," Robertson said.

According to the Renaissance Capital official, the current account gap could halve in 2011, supported by a 30%-40% increase in exports.

On the fiscal side, the government has pledged to lower the budget deficit to below 3% of GDP in 2012, from 6.4% of GDP in 2010.

"Even if this is not met, we assume public debt will be less than 40% of GDP in 2012, about equal to the aggregate private sector debt held by households and corporates," the report noted.

Romania's combined public and private sector debt will total around 75%-80% of GDP in 2012, less than Poland, half that of Hungary and "dramatically better" than those of Spain, Portugal, Greece, the UK and the United States of America.

"With a small current account deficit as well, Romania will look like one of the safest credits in Europe. A credit rating rebound back to investment grade from Fitch and S&P (to join Moody's) should therefore be of no surprise, in our opinion," Robertson said.

He estimated Romanian economic growth will be driven by rising exports and industry in 2011, while consumption should pick up in 2012 and accelerate in the following years as bank lending will rise.