Romania this year will register a 0.8% economic decrease, which will become sharper in 2002 by a one-percent drop in the Gross Domestic Product. Is this a mistake? It may very well be, but this is how the Institute of International Finance sees things.
“Such a forecast is not based on solid grounds,” Leonard Cazan, Development and Prognosis minister, told Ziarul Financiar. He claims it is probably about answers to questionnaires conducted by remote over a specific sample, which hardly has anything to do with reality.
“We must not forget that Romania has had credible forecasts of positive economic growth published ever since the beginning of the year,” Cazan says.
“It’s true that analysts of the leading international banks display more reservations than we do. However, come to think of economic results in the first months and barometers in the domestic business environments, this forecast seems extremely harsh on us and not extremely well grounded,” says analyst Aurelian Dochia.
As regards the effect of such a forecast on the international financial market, Aurelian Dochia does not think it will be too important.
“The markets kept a let’s-wait-and-see-what-happens attitude towards Romania, expecting concrete economic results to be published first,” Dochia specifies. He says that, where financial markets are concerned, it is yet too soon to be talking about a firm economic recovery trend in Romania.
“Forecasts, no matter if they come from the Government or international institutions, cannot influence markets at this moment, because they are still expecting to see what happens,” Aurelian Dochia estimates.
Overall real economic growth in Central and Eastern Europe, excluding Russia, is likely to moderate to 3.2% this year, down from 3.8% last year, according to IIF estimates. It will then rebound to 3.7% in 2002.
The Institute also notes that debt-servicing pressures also eased in Romania, thanks to the exchange rate adjustment in 1999, warning that the continued poor progress advancing structural reforms clouds medium-term debt servicing prospects.
The IIF report also shows that larger fiscal deficits and heavy bank restructuring costs will put fiscal sustainability at risk in the Czech Republic and Slovakia. On the other hand, IIF notes that narrower current account deficits have reduced the capital flow reversals in Poland and Slovakia. Risks have also eased because of progress in structural reforms, which have broadened the scope for inflows of foreign direct investments to Bulgaria, the Czech Republic and Slovakia. Political obstacles to reform will leave financing more limited for Russia and Romania.