Transcript Liquidity Management and Forecasting

Romania’s Economic Program
Supported by the IMF, EU,
World Bank, and other IFIs
by
Tonny Lybek
IMF’s Resident Representative in Bulgaria and Romania
[email protected]
at
Norwegian Cooperation Program
Bucharest
December 4, 2009
1
Agenda
 I: World Economic Outlook
– Uneven signs of recovery but no time for complacency
 II: Regional Economic Outlook
– From excessive credit growth to a credit crunch
 III: Romania’s Economic Program
 IV: Conclusion
2
I.1 The Global Crisis
 Deepest global recession since the 1930’s:
 In 2009, world growth is expected to decline
(1.1 percent) for the first time in 60 years!
 International trade declined
 How long will it last?
 Financial shock
 No obvious locomotive
 Positive signs, but no time for complacency!
 Normalization of activity, re-stocking
 Unemployment and Non-performing loans lagging
 Cautious exit of anti-crisis programs
(http://www.imf.org/external/np/g20/110709.htm)
3
I.2 World Economic Outlook
Real GDP and World Trade, Annual Change in Percent
2007
2008
Time of projection:
World output
Advanced economies
United States
Euro area
Germany
France
Italy
Spain
Japan
United Kingdom
European Union
World trade volume
Imports of advanced economies
Imports of emerg. & dev. countries
Exports of advanced economies
Exports of emerg. & dev. countries
2009
April
June
Sep
2010
April
June
Sep
5.2
3.0
-1.3
-1.4
-1.1
1.9
2.5
3.1
2.7
2.1
2.7
2.5
2.3
1.6
3.6
2.3
2.6
3.1
0.6
0.4
0.7
1.2
0.3
-1.0
0.9
-0.7
0.7
1.0
-3.8
-2.8
-4.2
-5.6
-3.0
-4.4
-3.0
-6.2
-4.1
-4.0
-3.8
-2.6
-4.8
-6.2
-3.0
-5.1
-4.0
-6.0
-3.8
-4.6
-3.4
-2.7
-4.2
-5.3
-2.4
-5.1
-3.8
-5.4
-4.4
-4.2
0.0
0.0
-0.4
-1.0
0.4
-0.4
-0.7
0.5
-0.4
-0.3
0.6
0.8
-0.3
-0.6
0.5
-0.1
-0.8
1.7
0.1
-0.1
1.3
1.5
0.3
0.3
0.9
0.2
-0.7
1.7
0.9
0.5
7.3
4.7
13.8
6.3
9.8
3.0
0.5
9.4
1.9
4.6
-11.0
-12.1
-8.8
-13.5
-6.4
-12.2 -11.9
-13.5 -13.7
-9.6 -9.5
-14.9 -13.6
-6.5 -7.2
0.6
0.4
0.6
0.5
1.2
1.0
0.6
0.8
1.3
1.4
2.5
1.2
4.6
2.0
3.6
Source: Table 1.1 in World Economic Outlook, April 2009; Table 1 in World Economic Outlook Update , July 2009,
IMF; and Table 1.1 in World Economic Outlook, October 2009 , IMF.
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II.1 Central and Eastern Europe
 The Good Times 2003–07—Catching-up:
 Vulnerabilities were building-up!
 Private sector imbalances growing rapidly!
– Increasing current account deficits
– Increasing exposures to Western banks
 Public finances looked much better than they were!
 Convergence process not fully appreciated!
 Crisis came late to the region:
 Initial denial made it difficult to take early action!
The five stages: Denial ->
Resentment ->
Bargaining ->
Depression ->
Acceptance!
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II.2 Impact of The Global Crisis
 Shock I: Lower external demand
 Shock II: Slowdown in capital inflows:
 Foreign direct investment (FDI)
 Funding of—mainly foreign-owned—banks!
 Direct borrowing by non-financial companies
 Slow-down in domestic demand:




Delaying investments, particularly construction
Uncertainty about employment
Slower wage growth and lower remittances
Wealth effects (asset prices)
 Some already ripe for a home-grown crisis:
 Imbalances differed among CEE countries
 Cushions differed among countries
 IMF has tried to stress differences in the region!
6
II.3 Vulnerabilities and Severity of
Recessions Have Varied
7
II.4 Regional Economic Outlook
Real GDP, Annual Change in Percent
2007
2008
Time of projection
Baltics
Estonia
Latvia
Lithuania
2009
April June
Sep Nov
2010
April June Sep Nov
7.2
10.0
8.9
-3.6
-4.6
3.0
-10.0
-12.0
-10.0
… -14.0
… -18.0
… -18.5
…
…
…
-1.0
-2.0
-3.0
… -2.6
… -4.0
… -4.0
…
…
…
Central Europe
Hungary
Poland
1.2
6.8
0.6
4.9
-3.3
-0.7
… -6.7
… 1.0
…
…
-0.4
1.3
… -0.9
… 2.2
…
…
Southeastern Europe
Bulgaria
Croatia
Romania
6.2
5.5
6.2
6.0
2.4
7.1
-3.5
-3.5
-4.1
-7.0 -6.5 …
… -5.2 …
-8.0 -8.5 -7.8
-1.0
0.3
0.0
-2.5 -2.5
… 0.4
1.7 0.5
…
…
0.5
Source: Table 2.4 in World Economic Outlook, April 2009; Table 1 in World Economic Outlook Update ,
July 2009, IMF; and Table A4 in World Economic Outlook, October 2009, IMF.
8
III.1 Romania: A Case in Point
 Global crisis made it increasingly
difficult to secure external financing:
 Large short-term private debt
 Large fiscal imbalances even in good
years, make financing challenging
during a recession
=> Emerging credibility problem!
=> In need of a “safety belt”!!
9
III.2 Romania’s Package
 Joint package supporting Romania’s program!
 Size of the “safety belt” (€20 billion over 2 years):
 IMF*: May 4; 24-month Stand-By Arrangement with exceptional access
€12.95 billion (1110.77% of quota). Interest rate about 3½% and
repayment over 3–5 years.
 EU**: May 5; ECOFIN Council approved the framework for a €5 billion
loan, a maximum of five installments over 24 months (on top of pre-and
post-accession funds and the advance payment of structural funds in
2009). Interest rate is libor + spread and an “average maturity of
maximum 7 years”.
 World Bank**: 2009–10, 3 DPLs of total €1 billion. Interest rate will
depend on the maturity, currency, and if fixed or floating rate.
 EBRD and other multilateral IFIs (EIB): various projects, about €1 billion.
* Half of second tranche to help finance the budget deficit
** Budget support
10
III.3 Romania’s Economic Program
 A: “European Bank Coordination Initiative”: foreignowned banks remain committed to Romania!
 B: Government addresses fiscal imbalances:
 Fiscal consolidation: ensure sustainability!
 Improve fiscal governance: ensure predictability!
 C: NBR continues to maintain sound banking system:
 Ensure prompt and early action
 D: Price stability remains primary objective of
monetary policy (inflation-targeting)
11
III.4 Secure External Financing
 Potential financing gap:
 Current account deficit
 Capital account
 Roll-over assumptions
 Reserves to exceed 100% of short-term debt!
 European Bank Coordination Initiative:
 Nine largest foreign-owned banks committed to:
 (i) maintain exposure to Romania, and
 (ii) increase capital in line with stress tests:




Vienna meeting on March 26, 2009
Brussels meeting on May 19, 2009
Bucharest meeting on August 6, 2009
Brussels meeting on November 18, 2009
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III.5 Ensure Fiscal Sustainability
 Budget deficits: March adjustment
 2009
 2010
 2011




1.1% of GDP
August adjustment 0.8 % of GDP
March
August
-4.6%
-7.3%
-3⅔%
-5.9%
better than-3%
-4.3%
Public salaries
Protect most vulnerable groups
Arrears of general government
Government guarantees
 Balance following factors:
 Back on a sustainable path
 Realistic financing
 Avoid excessive cuts exacerbating the recession
13
III.6 Ensure Fiscal Predictability





Improve tax administration
Restructuring of the public agencies
Increase accountability of local authorities
Better monitoring and control of public enterprises
*“Unitary Public Pay Law”:





Simplified pay scale, reduce reliance on bonuses
More transparent
Equity
Save resources
*Implementing legislation to be adopted in 2010!
 *“Fiscal Responsibility Act”
 *Pension Reform
* New legislation
14
III.7 Fiscal Responsibility Law
 Objective: achieve and maintain medium-term
fiscal discipline!
 Further improve transparency and responsibility
 Coverage: entities fully or partially financed
through the consolidated general budget:
 Also local governments and self-financed units
 Multi-year fiscal framework: rolling 3-year fiscal
strategy submitted to Parliament in May:
 Ensure predictability
 New expenditure proposals to show fiscal impact and
revenue sources
 Independent fiscal council
 Submitted to Parliament by end-November√
15
III.8 Pension Reform
 Objective: ensure long-term sustainability!
 Broaden contribution base
 Better relate pensions to contributions
 Gradually index to inflation instead of
wages
 Retirement age: gradually increase and
equalize for women and men
 Draft is in good shape, although some
issues to be further discussed
16
III.9 Maintain Sound Banking System
 Maintain strong capital buffers:
 Stress tests (prior action)
 Maintain 10 percent capital adequacy ratio (CAR)
 CAR at end-September was 13.7%
 In EU context, facilitate resolution procedures
 E.g., strengthen authority of special administrator
 Strengthen deposit insurance
17
III.10 Monetary Policy
 Maintain inflation-targeting framework:
 IT-targets within official range (3.5 ±1%)
 Quarterly path
 Review
 Only gradually easing if conditions permit:
 Required reserves
 Interest rates
 Maintain a floating exchange rate regime
18
III.10 Selected Indicators
 Real GDP, prel.
-7.4%
 Unemployment, reg.
7.3%
(s.a. Sep 2008 to Sep 2009)
 Inflation, CPI
4.3%
(Oct 2008 to Oct 2009)
(Q1–Q3 2008 to Q1–Q3 2009)
 Exports (value in €):
-18.3%
(Q1–Q3 2008 to Q1–Q3 2009)
 Imports (value in €):
-36.0%
(Q1–Q3 2008 to Q1–Q3 2009)
-8.5%
(Q1–Q3 2008 to Q1–Q3 2009)
 Industrial output:
 Housing prices, anecdotal information
19
III.11 Market Reactions
1400
EURNM CDS Spreads 5-year
(In basis points)
March 25, 2009
Agreement at staff
level on Romania's
Economic Program
Source: Bloomberg
1200
April 2, 2009
G20 Statement
in London
September 15, 2008
Lehmann Brothers
files for bankruptcy
1000
Bulgaria
Czech Republic
Estonia
Latvia
Lithuania
Hungary
Poland
Romania
Slovak Republic
800
October 1, 2009
Romania's coalition
government splits
600
400
200
0
Jun-08
20
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
IV Conclusion
 Global financial crisis is deep, but has been
mitigated by coordinated global measures!
 Those with smallest imbalances and largest
cushions have been least affected.
 Romania’s economic program is supported
by the IMF, EC, WB and other IFIs.
 We continue to work closely with the
Romanian authorities.
 IMF documents available on www.imf.org
and also in Romanian on www.fmi.ro
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Thank
you
very
much
for
your
attention
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