The conclusions of a financial stability report conducted by the National Bank of Romania.
"Romania has a good macro-economic situation, but risks to its financial stability, although decreasing, are significant. Against this backdrop, a cautious pursuit of economic policies is essential". This is one of the conclusions of a financial stability report recently made public by the vice-governor of the National Bank of Romania, Liviu Voinea. He said Romania's economy has recently registered one of the highest growth rates in Europe:
"The macro-economic situation is good and the risks to financial macro-stability have diminished, but continue to be significant. Romania continues to register sustainable economic growth, the risk of a fast and strong loss of investor confidence in emerging economies continues to be high, slightly higher as compared to the previous report from April 2016, while banks have continued to eliminate non-performing loans from their balance."
Another conclusion of the report is that legislative instability risks in the financial and banking sector have decreased in intensity, following a decision by the Constitutional Court of Romania regarding the debt discharge Law, which allows persons with mortgaged-backed loans who can no longer pay back the money to transfer their house to the bank, while the lender wipes out the debt. The vice-governor of the National Bank of Romania Liviu Voinea says once this decision was made, the associated risks have decreased. In April 2016, when the previous report was issued, the legal initiatives on the debt discharge law and the conversion in Swiss francs represented a severe risk. Liviu Voinea:
"In the case of banks, losses will be spaced out along several years, following the decision by the Constitutional Court, and as long as decisions are made individually, the two laws can no longer be considered loss-making events, in the sense of the European regulations on provisions."
The governor of the National Bank of Romania Mugur Isarescu explains:
"I have been one of the first people to say we enjoy a very good macro-economic situation. Never before during my long career has Romania enjoyed a better macro-economic situation. Never in the past 26 years. Equally, during these 26 years, there haven't been so many risks, and I'm not referring to small but to high risks, as the higher you are, the higher the risk. There are not many novelties, we saw such 'populisms' in the 1990s, but we were down. If you fall from the ground or the first floors, you risk something, it's true. But when you fall from higher up, the risk is higher, and the Romanian society should understand this. Paradoxically, the better the macro-economic situation, the higher the risks, not to mention micro-economic tensions, which are huge."
Under the circumstances, Mugur Isarescu says it is essential to protect the macroeconomic balance and the stability of the financial sector because any slippage will, sooner or later, lead to some painful corrections. He again underlined the importance of structural reforms to stimulate the country's economic growth potential, the only viable way to ensure its sustainable development. Internationally, volatility is the word that best describes the situation, whether on a political, economic or geopolitical level, was the conclusion of the representatives of the National Bank of Romania. The main challenges facing Europe and beyond are the much too fast growth of lending in China, Brexit, the upcoming elections in a number of European states and the situation of the European banking system. The World Bank's chief economist in Bucharest Catalin Pauna believes Romania faces the excessive deficit procedure if the country's policies maintain their current trend:
"Most countries have recently promoted policies to reduce fiscal deficits. The forecast for Romania goes in the opposite direction, in the sense that the European Commission estimates there is a serious risk in 2017 for Romania to have a deficit higher than 3% and thus face the excessive deficit procedure. Moreover, there is also a risk in 2017 that our fiscal deficit may be above the European Union average, which hasn't been the case in a long time. So, given the current policies, I believe there is a considerable risk we exceed the 3% level and the only thing we can do is to correct some of these policies."
However, Catalin Pauna says that if the government applies the measures at its disposal, such as improving tax collection and prioritising and making public spending more efficient, Romania can easily avoid exceeding the 3% budget deficit limit. In fact, the representatives of the new government led by the Social Democrat Sorin Grindeanu say Romania's budget this year will be below 3%.
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