WB, cautious with Romania – 1.2 pc economic growth in 2012

The international financial institution warned developing countries that they should brace for a long period of volatility at global scale, and for “harder times.”

The World Bank (WB) lowered the economic growth forecast for Romania this year, from 1.5 pc – as estimated previously – to 1.2 pc and warned developing countries to be prepared for a long period of volatility at global scale and for “harder times,” reads the ‘Global Economic Prospects – 2012’ report recently unveiled by the institution. As for the next year, WB slightly lowered Romania’s economic growth forecast from 3 pc, as it anticipated in January, to 2.8 pc. The institution expects economic activity to pick up in 2014, with an advance of 3.4 pc. The latest estimations of the IMF and the European Commission regarding the economic growth of Romania this year are slightly higher than the WB projection, with the IMF expecting the Romanian GDP to advance by 1.5 pc and the European Commission by 1.4 pc.“Developing countries should be prepared for a long period of volatility of the global economy, by granting increased attention to medium-term development strategies, while they brace for harder times. A re-ignition of tension in the developed states of Europe eroded the confidence achieved during the first four months of the year, when economic activity picked up and investors’ aversion to risk diminished,” the authors of the report explained.In Europe and Central Asia – the region that includes Romania – economic growth will slow down from 5.6 pc last year to 3.3 pc, reads the report. The region comprises 31 states with developing economies. The World Bank anticipates a major slowdown for Turkey this year, after two years of strong, but unsustainable economic growth, from 8.5 pc last year to 2.9 pc, if the global situation does not worsen. Apart from Turkey, other economies of the region, with economic and banking connections to the developed Europe, will be hit by the slow growth rates of western states and by the banks’ moves meant to curb their exposure. For Bulgaria, the World Bank halved the economic growth estimate for this year, from 1.2 pc in January to 0.6 pc. The estimated advance of the GDP this year has been revised downwards in the case of R. of Moldova too, from 4 pc to 3 pc, and for Serbia, from 1.5 pc to 0.5 pc. The WB slightly upped the growth forecast for Russia, from 3.5 pc to 3.8 pc, and kept unchanged the figures of Turkey (2.9 pc) and Ukraine (2.5 pc).

EUR 1 billion loan

The World Bank’s Board of Executive Directors approved Tuesday an International Bank for Reconstruction and Development (IBRD) loan of EUR 1 billion for Romania, a press release informs. This Deferred Drawdown Option Development Policy Loan (DPL DDO) will support the Government of Romania’s commitments under the EU Fiscal Compact. Under the Deferred Drawdown Option, the EUR 1 billion is not drawn immediately by Romania, but rather is available as a fiscal buffer to be called upon if it becomes necessary, and will remain available for the next three years provided Romania follows its macroeconomic and reform programs. “Romania has made good progress in stabilizing the macro-economic and fiscal framework and putting the country on a growth path, despite the challenging economic environment throughout Europe today,” said Philippe Le Houerou, World Bank Vice President for Europe and Central Asia.“We commend the new government on continuing the path of stability and confidence through structural reforms, and modernization of the public administration. The Bank is looking forward to continue its partnership with Romania to provide its expertise for sustainable and inclusive growth, and for EU convergence.”

WB support is shielding romania against unwanted situations

The EUR 1 bln loan approved by the WB helps Romania “avoid being pushed the back against the wall” if unwanted situations develop on financial markets, according to Claudiu Doltu, state secretary with the Ministry of Public Finance, quoted by a press release.“The usefulness of this loan results from the fact that it is considered as part of the money buffer held and managed by the Treasury, as a shield against eventual major turbulences on financial markets,” Doltu explained. “(…) The loan accord with the World Bank was – and continues to be – conceived strictly as a safety net in a prudent and responsible approach of Treasury administration. In fact, this instrument is also agreed by the IMF and EC in the larger project of assistance granted to Romania, present in the Letter of Intent assumed by the government under the preventive deal with the IMF,” he added. The state secretary also explained that “prudence, too, implies some costs.” Beyond this agreement, it is more important to reconsider the partnership with the WB, he mentioned.

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