Head of Romania's central bank asks government to harshen fiscal policy to correct external deficit

Head of the Central Bank of Romania (BNR), Mugur Isarescu warned today once again that authorities must not relax the fiscal policy and asked for support in correcting the external deficit.

The state posted a budgetary deficit of 2.4 percent of the gross domestic product over 2007. The budget for 2008 includes a 2.7 percent deficit.

Isarescu said the optimal solution for Romania is a mix of policies. The governor underlined the difficulty of attenuating the widening of the current account deficit, calling "painful" an attempt to reduce it by 1 percent especially during an electoral year.

The central bank estimated the current account deficit at 14.2 percent of GDP in 2007. The current account deficit widened 72.6 percent over the firs eleven months of 2007 against the same period in the previous year, representing 13 percent of the GDP estimated for 2007. In the same time, foreign direct investments cumulated 6.55 billion euros, covering 43 percent of the current account deficit.

On the other hand, Fitch Ratings estimates Romania's current account deficit could reach 17.5 percent of GDP in 2008. Foreign direct investments are estimated to cover the gap less this year as they could lower to 5.5 percent of GDP from 6 percent in 2007.

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