Romania monthly economic review July 2009
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28 Iulie 2009 |
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ERNST & YOUNG S.R.L. |
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Strada Dr. Felix Iacob, Nr. 63-69
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+40-21-402.40.00
Fax
+40-21-310.71.93
Website
www.ey.com
Latest developments
First-half budget gap at 2.7% of GDP
Romania’s budget deficit stood at 2.7% of the GDP in first six months of this year, according to preliminary data. The figure is below 2.73% of the GDP, which was the agreed cap with International Monetary Fund (IMF). State revenues in first half amounted to RON 77.23 bn, while expenses amounted to RON 91.65 bn. The budget deficit reached RON 14.42 bn at the end of June, slightly below the agreed cap of RON 14.51 bn, according to a preliminary report.
The general consolidated budget gap reached 2.1% of the GDP in the first five months, but the preliminary data for June showed that the agreed cap with the IMF for the end of the first half would not be exceeded. Romania has agreed with the IMF to contain the budget deficit in certain quarterly target ranges, in order to stay below the RON 24.36 bn target (4.58% of GDP estimated at RON 531.25 bn for 2009) at the end of December. For the end of the second quarter, the IMF and Romanian authorities agreed on a budget deficit target of RON 14.51 bn (2.73% of the GDP), and for the third quarter target of RON 18.61 bn (3.5% of GDP).
June CPI up by 0.2%, as annual inflation narrows to 5.86%
The consumer price index (CPI) rose by 0.2% in June, compared with the
previous month, due to higher fuel prices and the depreciation of the RON,
but annual inflation has narrowed down to 5.86%, according to data
released Friday by the National Statistics Institute. The increase in inflation
in June was fueled by higher non-food product and service prices, which
were both up by 0.4% compared to figures in May. Food prices fell 0.2%
m/m in June. The highest increase in the non-food products category was
posted by fuel prices, which had risen by 2.14% m/m. The service price
hikes were fueled by the RON depreciating against the Euro in June by
more than 1%, therefore some service prices that are linked to the Euro,
such as telephony services or air transport, were up by more than 1%
when compared with figures in May.
At the end of May, the annual inflation rate was at 5.95%, while the
harmonized index of consumer prices, or HICP, stood at 7% at the end of
June. Compared with the end of 2008, the CPI was up by 3.14% in June.
In the first six months, service prices rose by 4.76%, non-food prices were
4.14% higher, while the food prices grew by just 1.22%. The annual
inflation rate in each quarter is a performance criteria included in
Romania’s EUR 13 bn stand-by agreement with the International Monetary
Fund. As a result, at the end of June, the annual inflation rate had to rank
at 6.4%, allowing for a one percentage point variation. By December, the
annual inflation rate must come down to 4.5%. Romania's central bank
estimates that the annual inflation rate will be at 4.4% in December.
Current account deficit dropped by 75.5% since January
The balance of payments deficit in the first five months of 2009 was
EUR 1.77 bn, down by 75.5% when compared to the same period from the
previous year. The contraction is slightly smaller than that which was
registered in January-April, namely 78.9%, according to the data published
yesterday by the National Bank of Romania (NBR). "The trade balance
deficit had a decisive influence on the reduction of the current account
balance, totaling EUR 2.502 bn, down by 65.9% over January-May last
year," reads a press release of the NBR.
The current account deficit in the first five months was financed entirely
through direct investments of non-residents in Romania, amounting to
EUR 2.475 bn, down from EUR 4.269 bn, registered during the same
period in 2008. Considering the value of the foreign direct investments, the
intra-group credits represented 47.7%, the participations to capital 43.2 %,
and the reinvested profit 9.1 %.
The medium and long term foreign debt amounted, at the end of May, to
EUR 57.04 bn, representing 76 % of the total foreign debt, up by 12.3 %
compared to the level at the end of last year. The increase of the foreign
debt was determined chiefly by the loan from the International Monetary
Fund, whose first tranche totaled EUR 4.37 bn and special drawing rights,
i.e. EUR 4.77 bn.
January to May consolidated budget deficit rises to 2.1% of GDP
Romania had a consolidated budget deficit of RON 11.304 bn (EUR 2.68
bn) in the first five months of the year through May, equivalent to 2.1% of
the GDP projected for the current year. Last year, the country had a
consolidated budget deficit equivalent to 0.3% of the GDP in the January-
May period.
The consolidated budget revenue totaled RON 65.268 bn (EUR 15.474 bn)
in the first five months of this year, while spending reached RON 76.572 bn
(EUR 18.154 bn). Romania ended last year with consolidated budget
deficit of RON 24.65 bn (EUR 6.693 bn), equivalent to 4.8% of the
estimated GDP for the year. The deficit was calculated under the
Romanian accounting standards and would have been equivalent to about
5.2% of GDP, if it were calculated under European accounting standards.
In late March, Romania reached an agreement with the International
Monetary Fund (IMF), the European Union (EU) and the World Bank on a
EUR 20 bn loan package, aiming to support its crisis-hit economy. Last
month, the government revised the 2009 budget bill to match the
projections made in the agreement with the IMF. Under the revision,
Romania's 2009 budget deficit is projected to be 4.6% of the GDP, as
opposed to an initial projection of 2.0%.
