“Romania could return to pre-crisis real GDP only in 2014, if the economy rises 2.5% this year and 2.3% next year. In the medium and long term Romania needs economic growth of at least 3-4% a year in order to make up for the revenue and productivity gaps that separate the country from the eurozone,” says Eugen Sinca, chief analyst of BCR.
The International Monetary Fund is not happy with the economic growth rate, and hopes, its officials say, that the current loan agreement with Romania will be the last one and will bring the country in a position where it no longer has to resort to foreign aid.
In 2013, five years from the start of the economic and financial crisis, real GDP is set to reach 97% of the 2008 value in real terms. The two years of recession, 2009 and 2010, brought GDP down to 94% of the 2008 level, while the subsequent three years – 2011, 2012 and 2013 – are not enough to make up for lost ground. Only in 2014 will real GDP match the 2008 level.
But the difference is that the Romanian state is now twice as indebted: in December 2008 public debt was 19% of GDP (EUR25 billion) and now (June 2013) it is 38% of GDP (EUR53 billion).
Romania became one of the biggest clients of the IMF in the European Union in the spring of 2009, asking for EUR13 billion from the Fund and for EUR7 billion from the European Commission and the World Bank.
After five years, upon the approval of the third successive arrangement with Romania, at the end of September, the IMF noted that real GDP had not yet returned to the pre-crisis level, although Romania reduced its major fiscal and current account imbalances and started structural reforms in several sectors.
In fact, IMF representatives have repeatedly said that a country like Romania needs growth rates of at least 3-4% per year in order to reduce structural gaps and near eurozone living standards. Last year the Romanian economy grew by 0.7% and for this year most forecasts point to a 2% GDP rise.
Romania experienced two years of dramatic adjustment, which meant layoffs, cuts to public sector workers’ wages and a VAT hike. In 2009, the economy fell 6.6%, while in 2010 it fell 1.1%.
In 2011, Romania continued to resort to the IMF anchor to ensure its credibility on external markets. And the precautionary arrangement was set to focus on stimulating the economy. But economic recovery remained frail, privatizations were postponed and so were structural reforms.
Romanian authorities and external lenders have not been able so far to find the “recipe” for economic growth for Romania. Lending is on the decline, consumer demand has not recovered after public sector wages were restored from a previous cut.
The economy is macroeconomically stabilized, but while most macroeconomic data are encouraging, signals from the real economy are less optimistic, with the number of insolvencies continuing to rise.
(English version by Daniela Stoican)