WB: 2.5-3 pc economic growth for Romania in 2014, even higher


The macroeconomic situation will continue to consolidate in the context of the program with IMF and EU, Elisabetta Capannelli, Country Manager for Romania at WB.

The World Bank (WB) estimates that Romania will record in 2014 an economic growth between 2.5 and 3 percent, possibly even higher, in case it will turn out to be a good agricultural year.
“The macroeconomic situation, which is already good, will continue to consolidate in the context of the program with the International Monetary Fund (IMF) and the European Union (EU). The fiscal deficit will narrow further, end-year target agreed with the IMF is to 2.2 percent of GDP, and the government is also working to improve spending composition, particularly by upgrading the framework for public investments. Inflation has reached a historical low of around 1 percent year to year in March, although it may increase towards 3-3.5 percent in the second half of the year due to a base effect; prices of food products brought down inflation in the second half of last year. The current account deficit is firmly under control: -1.1 percent of GDP in 2013, and estimated -1.5 percent in 2014. Access to the domestic and international financial markets is good, and Romania issued this year its first 30 years bond. (…) However, non-agriculture growth will very likely be higher than the 2.4 percent of last year, driven by an acceleration of domestic consumption and improvements in investment, particularly due to the absorption of the EU funds,” said Elisabetta Capannelli, Country Manager for Romania with the WB during an interview for Agerpres.
According to her, the acceleration of the reforms in energy, with privatization, corporate governance, price liberalization etc., in transport, health, public investment, and a better alignment of the policy agenda with the budget should boost the medium term growth potential of Romania to 4-5 percent/year and accelerate the convergence with the EU. “Romania is currently at around 50 percent of the EU 28 average in terms of GDP per capita at PPP, up from around 28 percent a decade ago. This is a remarkable catching up”, the WB official said. She underlined that one of the greatest challenges this year is to stay on track with the structural reforms, as planned. “We are convinced however that the government will show the same determination as in the last few years, when Romania also went through elections. Externally, the challenge is the crisis in Ukraine. The crisis in Ukraine and Crimea could impact Romania and other CEE countries, but the direct and immediate threats are limited because these countries are well anchored with the European and NATO membership. Romania has also a significant degree of energetic independence and limited exposure from trade with Ukraine and Russia,” said Capannelli.
Romania’s active lending portfolio under WB programs, USD 2,422.5 M
Romania’s active lending portfolio under World Bank projects amounts to USD 2,422.5 million, the WB country manager for Romania told. Of this portfolio, Romania still has loans worth USD 1.041 billion to draw. The oldest ongoing project to date is the Judicial Reform Project with 8.3 years since approval by the Board and which should wrap up in 2015. The net commitment under the project is USD 130 million, of which Romania still has to draw USD 65.5 million. Of the projects carried out by the WB in Romania, two would have to close this year, four in 2015, one in 2016 and another in 2019. To these adds a new project, the Health Sector Reform, worth USD 338.8 million, which was approved by the WB Board on March 28, 2014 and under which no money has been drawn so far. Romania also did not draw money under the USD 91.8 million worth of Revenue Administration Modernization Project that should unfold during 2013-2019.
“There are no projects which have been entirely unsuccessful. The ongoing projects are rated moderately satisfactory or satisfactory. However, there some recently closed projects where sub-components did not have the expected impact. One example is component 1 of the Modernizing Agriculture Knowledge and Information Systems project, dealing with strengthening the sanitary, veterinary and food safety institutions and phyto-sanitary Units in Romania,” said Elisabetta Capannelli.
The Bank supported projects undertake internally a very complex ex-post evaluation which includes process evaluation, cost-benefit evaluation, and impact evaluation. Sometimes the methodological rigor is so high that projects with significant impact on the ground are penalized on technical ground, for instance for too broad formulation of their development objectives, which makes it difficult for the project to directly attribute success. The WB official gave as an example the Modernizing Agriculture Knowledge and Information Systems project in the area of increase in agri-food export to EU 27 relative to Gross Value Added. Another example is the Irrigation Project.
The WB Group is currently preparing the country partnership strategy for 2014-2017. “In the coming period a full array of instruments will be used by us and our partners to support the Government’s efforts to enhance Romania’s growth and development. (…) About a third of Romanians are still poor, so more needs to be done going forward. A new model of growth is required. We want to promote growth, job creation, and we believe that for these a new series of structural reforms is required,” said Capannelli.
In another context, the international financial institution will be working with the Ministry of Public Finances and a number of ministries, responsible for areas like transport, and regional development, to further consolidate the framework for public investments.

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