World Bank: Romania Attractive For Long-Term Investments

'Romania remains an attractive destination for investors who want generous profit for the long term, but it is less attractive for short-term investments. This is mostly due to the cheap labor force and to the country's close proximity to other European markets,' said Catalin Pauna, chief economist with World Bank's office in Romania.

Speaking in a news conference, Pauna said the recession's effects in Romania were augmented by the lack of structural reforms.'The economic contraction would have been much smaller in 2009 and we would have been on an upward path by now. These past years should have been dedicated to implement structural reforms,' he said.In 2009, Romania's gross domestic product shrunk by 7.1%, after a growth of 7.1% a year earlier.For 2010, the authorities forecast zero economic growth or even a 0.5% contraction.

Multilateral Loan Recommended For Romania's Budget Needs

Low borrowing costs are vital to ensure adequate financing to cover Romania's budget needs, an official at the World Bank said Thursday, adding that a new international loan package may be a good move at this time.Catalin Pauna, chief economist with the World Bank's office in Romania, said the international institution is concerned about the country's progress in the fiscal sector.The authorities in Bucharest must convince the markets that its deficit-reducing program unfolds as scheduled, Pauna said.

The lack of fiscal adjustments is one of the reasons Romania is among the last states to resume economic growth, he added.'I believe that several factors contribute to this (to the delayed economic growth). Romania had one of the largest budget deficits in Europe, and this let little room for policies aimed at relaunching the economy,' Pauna said.Still, Pauna voiced confidence that Romanian economy will see positive economic growth in 2011, supported by bigger exports.

Last year, Romania secured EUR20 billion in foreign aid from the International Monetary Fund, the World Bank and other lenders to cushion the effects of the recession.Joint teams from the IMF, EU and the World Bank are due to arrive in Bucharest on July 26 for a new review of Romania's progress under the agreement.

Romania ranks second in EU10 by labor cost

Romania ranks second among EU10 member states by the hourly labor cost, chief economist of the World Bank (WB) Bucharest-based office Catalin Pauna told a conference devoted to the release in Bucharest of the July 2010 edition of the EU10 Regular Economic Report. The document shows that Romania's reverting to economic growth also depends on its capacity to absorb European funding that can supplement state investments, thinned by fiscal adjustment needs.

The EU10 states (that joined the EU in 2004 and 2007, respectively) took a series of measures to enhance the administrative funds absorption capacity, including action related to management, planning, implementation, evaluation and monitoring, financial management and control. Whereas the steps taken by Poland fit into four of these five categories, Romania adopted only implementation-related measures.

'I think that Romania should take steps towards simplifying access to European funds,' said Catalin Pauna, who also advised 'action towards stimulating exports and smoothing out difficulties in accessing European funds by local communities. Apart from European regulations, we come up with national regulations, but we need to see how necessary these really are.'

The authorities' concern should be - in Catalin Pauna's opinion - the fiscal adjustment and, in particular, identifying cheap financing sources, including from international financial institutions. 'Bureaucracy is also a serious hindrance to the absorption of European funds.' The proposal made in Brussels that states running excessive deficits be sanctioned 'cannot be applied now, but could be discussed for the long-term,' said the chief economist of the WB Bucharest office.

Inflation will not exceed 2.5-3 percent in Romania

Short-term inflation in Romania will not exceed 2.5-3 percent, senior economist of the World Bank Bucharest Office Catalin Pauna told a news conference on Thursday that released in Bucharest the July 2010 edition of the World Bank's EU10 Regular Economic Report.The recent 5-percent rise in the Value-Added Tax in Romania will not trigger any alarming inflation in the long run either, said Pauna.

'The inflation triggered by the rise in the VAT is only 2.5-3 percent, but that will go down in some months' time,' he said.The World Bank's report, which is published three times a year, monitors macroeconomic and reform developments in 10 European Union member states - Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia - and provides in-depth analyses of key policy issues.

It says that economic upturn is weak. Private consumption and private investment are likely to add to growth only from 2011 onwards. And post-crisis growth is likely to stay below pre-crisis growth in view of reduced capital flows, restrained credit growth, and structural adjustments in the economy. Economic activity in Bulgaria, Estonia, Hungary, Lithuania and Romania is set to stagnate, as the unwinding of imbalances continues.

According to the WB report, assuming appropriate policy responses will safeguard financial market stability, the EU10 countries are projected to expand by 1.5 to 1.7 percent in 2010, and 3.1 to 3.6 percent in 2011. The growth advantage of the EU10 region over the EU15 region - Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom - could increase from around 0.5 percent in 2010 to 1.5 percent in 2011.

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