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Financial banking analysts warn: Import consumption lays pressure on inflation and leu depreciation

Romania’s economy presents a series of vulnerabilities in front of foreign and especially domestic threats, while growth based on consumption from import lays pressure on inflation and the depreciation of leu, members of AAFBR ( Association of Financial Banking Analysts of Romania) showed on Wednesday.

“From macroeconomic perspective, Romania’s main domestic problem is promoting procyclic fiscal policies, by reducing taxes an increasing public expenses, thus feeding the risk of skidding which will have to be adjusted in future. The accent of these policies is placed on increasing salaries and pensions at a rate economy cannot sustain,”said analysts a the 9th edition of the annual AAFBR conference, held at BNR headquarters.

Thus, limiting budget deficit to 3% during the current year, “is not a de facto success, in conditions in which public investments register the lowest level in the last 10 years, but accelerating the distribution of dividends from profitable state firms is only a temporary measure which will stop the development of their potential in the future.”

According to AAFBR, “the increase of people’s incomes does not reflect a more productive economy, while additional consumption is oriented mainly toward imports, thus feeding pressures on growing inflation and depreciation of local currency.”

From the perspective of business environment, active companies in Romania present a higher vulnerability compared to 2007-2008 period in the context in which:

- polarisation phenomenon increases in context of income, profit and cash concentration among the most important companies;

- local entrepreneurship is very modest, in context of uncertainty created by frequent, unexpected  fiscal amendments;

- financing structure is in deficit, on the background of growing debt degree and high company share which register negative capitals;

- systemic risk has grown because of extending payment terms among companies, amplifying interdependence between firms and the domino effect;

- ;labour market undergoes high tensions because of older population, amplification of emigration phenomenon and very high level of inactive population.

“The increase of investments and productivity of local companies, essential to support exports and increase potential GDP, can only be supported by structural reforms in de-bureaucratising public administration, making fiscal incomes more efficient, developing infrastructure, investments in health and education, as well as ensuring a stable fiscal and juridical frame,” analysts showed.

Another warning of AAFBR members refers to reducing mandatory contribution to pension funds pillar II from 5.1% at present to 3.75% in 2018.

“This amendment is implemented although Romania promised, in the Convergence Program, to ensure a minimum contribution of 6% from the employees’ gross income to private pension funds, in order to ensure the sustainable reform of the pension fund, which at present faces a high deficit.

At foreign level, “the year 2017 war marked by a series of important events. Either we are talking about amplifying geopolitical tensions in the world, uncertainties about EU future, the US entering a new cycle of monetary policy, the growing volatility for certain active classes, becomes obvious at social, political, economic and technological levels,” association members showed.

In this volatile and unpredictable context, domestic sustainability on medium and long term “can be only ensured by the promotion of anticyclic polities and structural reforms engaged around a well defined strategic concept.”

Set up in January 2008, AAFBR is a professional organization with 100 members from all areas of the Romanian financial market - banks, insurance companies, brokerage companies, private pension funds, international financial institutions. AAFBR is a member of EFFAS (European Federation of Financial Analysis Societies). The annual AAFBR conference approaches economic topics and gathers participants from Romania and representatives of international financial institutions.

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