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Romania may enter economic shrinking spiral, WB warns gov’t

Boc cabinet is recommended to limit on short term the rise of the salaries subject to inflation, to freeze hiring and to start a multi-annual plan for elimination of the bonuses. Romanian economy could decrease by 3 pc this year.

Romania is confronted with risks connected with the pro-cyclic tax policy, salaries, the foreign funding and the reduction of the foreign demand, which can conduct to an economic shrinking spiral and problems in the banking sector, a report drafted by the World Bank for the Romanian authorities reads, quoted by Mediafax. The analysts note that the confidence in the economy could be negatively affected if the new Government fails to take action "aggressively" in order to support the monetary policy and to narrow the budgetary and current account deficits.

The WB analysts recommend the Romanian authorities to limit in the short run the growth of salaries according to inflation, to freeze the hiring and to begin a multi-annual plan of elimination of the bonuses, showing that the absence of a coherent salary strategy allowed the unions to have excessive demands. In a report drafted for the Romanian authorities, WB shows that the absence of a coherent strategy in the domain of salaries in the public sector allowed the unions to have excessive demands, the existence of inequitable compensations and determined the appearance of distortions on the labour market. The WB experts consider that the Public Finance Ministry (MFP) must assume an important role in the management of the crisis, because important amounts of the public funds may be at stake.

The World Bank is also worried by the potential adverse effect of the National Energy Company, the uncertainty regarding this issue and the role of the Government in the energy sector having conducted to the deferring of some essential projects in this domain. The analysts of the institution recommend the adoption of prudent fiscal policies, that would correct the current imbalances and keep deficit under control, and that would be supported by medium term reform programmes.

In order to boost the budget revenues, WB recommends the continuation of the process of modernization and simplification of the taxes framework, the increase of certain taxes, like the vice tax, to resume the privatisation of the state companies, those of utilities included, and to sell the surplus of the carbon dioxide emission rights.

The growth of the teachers' salaries is ‘absolutely necessary' but must be correlated with reforms

The growth of the teachers' salaries is "really necessary," on condition to implement measures targeting the correlation of the number of teachers with that of pupils, to assure the remuneration subject to performances, while the curricula must be adapted to the needs of the labour market, according to the WB. On another hand, the analysts show that the diminution of the expenditures in time of crisis should not affect the quality of education, if these reductions are "wise."

The World Bank report also registers the fact that the absence of clear regulations regarding the indexation of pensions conducts to a high vulnerability of this system in case of political pressures, which increases the uncertainty connected with the fiscal perspectives of Romania, and also the uncertainty of the participants.

The analysts note that the "significant" rises of the pensions from 2007 and 2008 will prompt a deficit in the pension system representing 2.3 per cent of GDP starting this year, the deficit reaching 6 per cent of GDP in 2050.

Besides all these, the absolute poverty could grow this year, compared to 2008, by 1-2 percentage points, to 11-12 per cent, on the background of the international crisis, in case of failure to take adequate measures to combat this phenomenon.

Contracts' renegotiation for infrastructure increases initial costs two-three times

Not that it is something new, but WB analysts mention also the unitary costs for the transport infrastructure from Romania which are among the highest in Europe, one of the reasons being the repeated renegotiation of the contracts concluded with private firms, and thus the final sum exceeds two-three times the initial level. The WB experts note that the urban transport is largely neglected, with serious consequences from the economic point of view, but also with a negative effect on the standard of living of the population.

Also referring to the transport sector, WB notes that savings of up to 40 per cent are possible for the sums allotted to the construction and maintenance of roads.

J.P. Morgan: the economy of romania will shrink 3 pc this year

The economy of Romania could shrink 3 per cent this year, on the background of the slowing down of crediting, reads a J.P. Morgan report taken over by Hotnews.ro. The analysts of the bank also show that according to a pessimistic scenario, non-performing credits in the portfolios of the Romanian banks could arrive at 15-20 per cent, from below 3 per cent at the end of the past year. They emphasize the high dependence of the Romanian banking system on the foreign funds, and the important weight of the credits in foreign currency in their portfolios.

 

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Tags: could analysts romania romanian salaries economic mfp