BUCHAREST Dec 13 The risk of a sudden shift in
investors' perception of emerging economies has risen and could
put pressure on Romania's economy quickly, the central bank
warned on Tuesday, stressing the need for prudent fiscal and
Its comments follow victory in a parliamentary election on
Sunday for the leftist Social Democrats, whose promises to raise
wages and pensions have raised fears that Romania might breach
budget targets set by the European Union.
The executive European Commission already expects Romania's
budget deficit to quadruple from 0.8 percent of economic output
in 2015 to 3.2 percent in 2017, in European accounting terms,
its 3 percent of GDP ceiling.
In its biannual macroeconomic stability report, the central
bank said uncertainty about global growth and geopolitical
tensions could prompt investors to dump riskier emerging
For Romania, that risk was mitigated by manageable foreign
funding needs and costs and a hard currency buffer that could
cover several months of foreign debt payments, the report said.
Foreign investors hold less than 20 percent of Romania's
government bonds, limiting contagion risks.
The economy has recorded one of the EU's fastest growth
rates this year, driven mainly by tax cuts and wage hikes.
Funding costs have fallen, the benchmark interest rate is at a
record low 1.75 percent and inflation is in negative territory.
"Even so, risks to macro stability are significant," the
report said. "Economic growth, based predominantly on domestic
consumption, also put pressure on the trade balance."
"Romania's fiscal position has deteriorated in 2016, which
can create problems with funding the public deficit as the
domestic banking sector already has a high exposure to
government debt," the central bank said.
Local banks' exposure to the public sector amounted to
roughly 20 percent of all banking assets, the highest level in
the EU, it added.
Overall, the Romanian banking sector could withstand
unfavourable developments, with a solvency ratio of 18.8 percent
and non-performing loans down to 10 percent by the end of
September, the bank said.
The Social Democrats are set to form a government with
junior ally ALDE following their weekend election win, but a
budget plan for 2017 is thought unlikely to be approved this
year, prolonging uncertainty for investors.
(Reporting by Luiza Ilie; Editing by Catherine Evans)