Weekly Financial Focus

12 Decembrie 2010

BANCA COMERCIALĂ ROMÂNĂ S.A.

 

News

The Parliament has adopted the Pension Law

An important step forward was made this week, when the Parliament adopted the new Pension Law, which is part of the reform legislation package agreed with the IMF. However, market reaction was muted, with the leu trading at 4.296-4.311, amid less supportive regional sentiment after Moody's made the decision to downgrade Hungary. Without taking the shine off the adoption of the pension law, Romania has yet to adopt another two crucial laws aimed at pushing forward the public reforms and securing the seventh tranche from the IMF in January: 'the single pay scale' and the '2011 budget'.

We remain skeptical about these two drafts being adopted in the remainder of this year, as the Social Democrats have already announced that they will introduce a motion of censure against the 'single pay scale', for which the government intends to assume responsibility on December 14. Moreover, Victor Ponta, the leader of the Social Democrats, has threatened to challenge the law in the Constitutional Court, in the event that the motion is rejected by the Parliament. This whole rigmarole that the 'single pay scale law' has to go through will certainly cause a delay in the adoption of the 2011 budget. Although there is a pretty slim chance for the motion to be adopted, this will be the third time this year when the battered center-right coalition will be in the line of fire. The leu could thus remain under pressure in the remainder of 2010 amid the skittish mood of investors already affected by some stressful international news regarding fiscal issues in some countries. Considering, however, the strong level of foreign exchange reserves covering nine months of imports and the managed floating regime, we still see the leu at 4.20 by the end of March, as long as Romania follows through with the necessary reforms, which will lay the basis for a new precautionary agreement with the IMF in spring 2011.

Budget draft 2011 has been sent to the Parliament

On Monday, the cabinet approved the 2011 draft budget, which is built on an economic recovery of 1.5%. The government has sent the budget to the Parliament and urged them to put it up for debate in an emergency procedure. The fiscal deficit for 2011 is set at 4.4% of GDP, so the minister of finance said that the Maastricht target of 3% of GDP could be met in 2012. He added that personnel expenses, as well as goods and services and social allowances, will be trimmed further in 2011, while capital expenditures are set to RON 35.1bn, up from RON 33.9bn in 2010. Payrolls in the public sector will be limited to a vacancy ratio of one job out of seven. The MinFin estimates higher budget revenues (32.9% of GDP), following better collection of VAT and excise duties. Public expenditures will decline to 37.3% of GDP in 2011, from an estimated 39.5% in 2010. The MinFin plans to cover the budget deficit in 2011 by borrowing 45% from the domestic market and 53% from abroad. The remainder of 2% will be covered from other sources.

MoF sold 6-month debt papers at lower yields

MFin sold on Monday the planned RON 1bn in 6-month T-bills at and average yield of 6.88% down from 6.96% at a similar tender held in November 15. However, for maturities longer than 6 months investors are likely to stand their ground asking for more than 7% as inflationary expectations have run high. Although the ministry has relinquished its 7% cap on yields, most likely it will try to turn down investors' appetite for higher gains considering the ambitious budget deficit target for the next year (4.4% of GDP on cash terms), but also the strong liquidity in the money market. If Romania manages to adopt the legislation assumed within the IMF agreement by end-2010, including the 2011 budget, the Fund will disburse the seventh tranche in January 2011 and probably talks on a new precautionary framework will start. This will create conditions for yields to decline by 20-25bp by end-March 2011.

 

Real economy

Outlook Dec-10: Favourable: oil processing, mining & quarrying, automotives and electricity, gas & steam; Stable: wood & wooden products, textiles, leather products, machines & equipments, electric equipments, IT and TV; Negative: construction materials, printing and recorded media, metallurgy and metallic constructions. Main limitation factors: i) insufficient demand especially in mining & quarrying, metallurgy and metallic construction as well as in printing and recorded media and ii) financial deadlock in mining & quarrying, electric equipments, and IT & TV.

Outlook Nov-10-Jan-11: Local managers anticipate further negative trends in the months ahead, being also under the impact of the winter time when usually this activity winds down significantly. Main limitation factor: financial deadlock.

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The tricky lag LUCIAN CROITORU Adviser to the Governor - BANCA NAŢIONALĂ A ROMÂNIEI Lucian Croitoru, Adviser on monetary policy issues to the National Bank of Romania Governor, talks about the NBR’s next moves and explains why the decrease ofthe policy rate hasn’t been reflected into lower interest rates on bank loans. mai mult... The turnaround CRISTIAN SPORIS Secretar de Stat - MINISTERUL ECONOMIEI ŞI FINANŢELOR Cristian Sporis, Secretary of State at the Ministry of Public Finance, in charge with the national treasury and public debt, explains how the state managed to borrow money at the lowest costs in the last seven years and how it turned from a clear market taker into a player with a strong position on the market. mai mult...