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BNR report: the risks at the address of financial stability are growing
The tensions of macro-economic domestic balance and regarding the legislative framework which is uncertain and impredictable in the domain of finances represent the main risks at the address of financial stability together with the deterioration of the trust of investors in the emerging economies according to the report on the financial stability published on Wednesday by the National Bank of Romania (BNR).
The risk regarding the tension of the macro-economic balance continued to manifest in the context of the deterioration of the balance of the current account and uncertainties regarding the behaviour of the fiscal policy, while the structure of the economic growth has remained suboptimal. At the same time, the twin deficits continued to deteriorate according to BNR.
‘The budget deficit reached the level of 3% of GDP in 2018, and the structural deficit increased at 3.6% (against the target of 1% assumed by the Stability and Growth Pact) and it is anticipated to deepen, which diminishes the capacity of the authorities to act anti-cyclically at the moment of the slowing down of the economic activity. The excess of demand shows inflationist pressure which is growing with effects on the foreign balance’ the report says.
BNR warns that the account deficit has increased, registering the highest value at European level and its financing has been made only partially in the flows non-generating of debt. Moreover, although with a diminished contribution, the consumption was left as the main engine of economic growth.
‘In exchange, the activity of investments was restricted, while net export continued to erode the dynamics of the real GDP. These elements determined the re-classification of the risk regarding the tension of the domestic macro-economic balance from the category of moderate systemic risks into that of high risk with perspective of growth for the period to come’ the report says.
OUG 114, major risk at the address of stability
Similarly, at the domestic level, the risk regarding the legislative framework, which is uncertain and impredictible in the domain of finances and banking, with involvement in the solvability of the banking system has come back during the second period of 2018 at the level of high risk. BNR warns that the uncertainties strengthened at the end of 2018, following the adoption of OUG nr.114/2018 through which a tax on banking assets was included. The specific provisions had a series of elements which affected the financial stability among which the calibration of the quantum of the tax depending on the value of the market indicators ROBOR, aspect which could affect negatively the efficiency of the monetary policy.
‘Moreover, the implementation of OUG 114 was not associated with a study of impact of the initiators and consultation of the parties involved, namely the Central European Bank’ the press release says.
The third high systemic risk indentified is of external nature and refers to the deterioration of the trust of investors in the emerging economies, including, on the part of uncertainties regarding the economic evolutions in the EU and the US. At international level, an important degree of uncertainties defines the economic and financial evolutions, as vulnerabilities continue to gather, especially as regards the indebtedness of private and public sectors, and the economic activity has slowed down.
‘There are premisese that these vulnerabilities get increased in the period to come in the context where the trend for normality of the financial conditions started by the main central banks at global level during last year has been slowed down on the basis of the slowing down of the rhythm of economic growth’ the report says.
BNR warns that an increase of the vulnerabilities, in the conditions where we keep financial conditions accommodating to the historical values, is in strict connection with such factors as commercial tensions between the US and China, uncertainties referring to the modality of solutioning the process of Brexit and the worries connected to the situation of sovereign debts in the euro zone.