We have 35% public debt in GDP, Isarescu says

“We see an increase in external imbalance on the background of domestic absorption beyond the economy’s potential. The over demand for consumer goods has continued to erode the current account. We see robust economic growth in mitigation against the post-crisis peak recorded in 2017, based on consumption,” BNR Governor Mugur Isarescu said on Wednesday, on the occasion of releasing the Central Bank’s Annual Report.

Isarescu also said that the rating agencies look not only at the depth of the current account deficit, but also whether the authorities understand the gravity, because a correction will not be easy, hotnews.ro informs.

Other statements:

• The risk of an uncertain and unpredictable legislative framework in the financial and banking field has recovered since the second half of 2018, with the unexpected adoption of GEO 114, whose initial provisions affected financial stability and limited the effectiveness of monetary policy. There were then legislative initiatives that were subsequently declared unconstitutional: the introduction of maximum interest rate ceilings, the deletion of the enforceable title of the credit agreement, and so on.

• Two things are to be understood: in Europe, banks hardly grant long-term money. That is why the EU focuses on capital markets. (…) We have few companies able to contract loans from banks and we cannot force banks to lend money to firms that risk not giving the money back. We still have an excess of resources and few beneficiaries. The solution would be a reform of the companies!

• The fact that we did not allow a volatile exchange rate was not bad. We did not have many tools, but we used them all, and our currency volatility is very low.

• There was no manipulation of ROBOR index. Interest rates have risen because we have strengthened the monetary policy and reduced the liquidity on the market. The ROBOR increase was natural, it was not manipulated!

• The indebtedness of the country looks good, the share of debt has not increased as a share of GDP. We are at 35% public debt in GDP, among the lowest levels. Rating agencies see this, and loans to Romania are made in large volumes and at low interest rates. The problem is not this, but what we do with the money.

• The external imbalance is deepening, amid the expansion of internal absorption beyond the economy’s potential.

• Investments do not look good at all, and fiscal policy has not entered an anti-cyclical trajectory in 2018.

• Balance of goods is in severe deterioration and consequently, although the exports have increased, Romania’s market share in the EU has not decreased.

• The BNR made a profit of RON 1.1 billion in 2018. 80% of it – almost RON 1 billion – was transferred to the state budget. The difference is not paid as bonuses to the bank’s management. The management does not collect bonuses, but only the staff with special professional merits!

• The BNR’s profit is due to the foreign currency reserve management, not from the monetary policy.

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