With the trade deficit at 12%-13% of GDP and a current account (CA) gap of rather 8% of GDP (from 7% of GDP last year) on the external balance side and the budget deficit at 5.8% of GDP (with a little help from the sharply rising nominal GDP), the twin deficit problem remains acute for Romania, according to a research report of Raiffeisen Bank Romania published by chief economist Valentin Tataru.

"Even if we have an economic growth of at least 5% this year, twin deficits and inflation remain key macroeconomic challenges," Tataru points out.

The Government is increasingly under pressure when it comes to public deficit financing, despite the decent yields it accepted to pay, Tataru reasons.

Deducting the revenues generated by another Eurobond issue and the disbursements under the Resilience Facility, he estimates the Government's monthly financing needs for the remaining of the year at RON 7 bln - or at least RON 5 bln corrected for the retail issues.

"All in all, although the challenges remain, we believe that this year's financing needs will come to light as long as the Ministry of Finance agrees to pay yields close to the secondary market," the report reads.

As regards the inflation and the refinancing rate, Raiffeisen Bank's analyst expects the inflationary peak to exceed 15% in June and the policy interest rate at 6% by the end of the year [to stay there for the whole coming year].

A key factor for next year's inflation profile will be the decision to extend the current limits for natural gas and electricity prices to households, the analyst reasons. "Given that 2023 is a pre-election year, we doubt that the ceilings will be completely removed," he adds. 

(Photo: Nuthawut Somsuk/ Dreamstime)

iulian@romania-insider.com