“The balance of payments is starting to deteriorate, given that exports are losing ground and foreign direct investments are no longer able to cover the current account deficit. The poor performance of foreign investment reflects the perception of foreign investors of how the authorities have managed the economic crisis in Romania and the attractiveness of the business environment,” commented Melania Hancila, chief economist of Volksbank.
The FDI covered just 34% of the current account deficit in the first eight months.
The return of the economy to growth this year after two years of recession did not attract too many foreign investors though.
The lack of radical structural reforms of state institutions, fiscal inefficiency, high corruption, the flawed legal system and the unpredictability of the budgetary policy are only some of the qualitative criteria that deteriorated the appetite of foreign investors for Romania. The country still had investment opportunities to offer, because of the low development of many sectors of the economy (industry, agriculture, tourism, road infrastructure, energy industry), Hancila explained.
Direct investments by non-residents in Romania amounted to EUR1.12 billion in the first eight months, down 52% compared with January-August 2010.
Improving Romania’s attractiveness as a destination for foreign direct investment is very important, considering its dependence on foreign capital, as the domestic savings level is low.
Ionut Dumitru, chairman of the Fiscal Council, said that Romania cannot develop in the absence of foreign capital. “If capital inflows are low, we will have slow economic growth. If the environment becomes more friendly through structural reforms and we manage to attract foreign capital, the economic growth will be faster.”
(English version by Loredana Fratila-Cristescu)