The World Bank in Romania

Aprilie 2009

CĂTĂLIN PĂUNA - Economist Senior BANCA MONDIALĂ BIROUL ROMÂNIA

Romania is a middle income country with a GNI per capita of USD 6,150 in 2007 (Atlas method). With a population of over 21 million, it is the second largest country in Central and Eastern Europe and the seventh largest among the 27 current members of the European Union (EU).

Romania has joined the EU on January 1st, 2007, following the completion of the negotiations in 2004 and the signing of the Accession Treaty in 2005. The prospect of becoming an EU member constituted a solid external anchor for the transformation of the country throughout its transition. Nevertheless, accession to the Union and the adoption of EU standards is neither the beginning nor the end of the integration process. The reform agenda remains important and structural adjustment needs to continue to ensure sustained real and nominal convergence with the EU. Moreover, poverty persists, with 9.51% of the population living below the poverty line. Two-thirds of Romania’s poor live in rural areas despite the country’s substantial potential in agriculture, forestry and fisheries.

EU membership has opened a broad range of opportunities, including access to generous structural and cohesion funds. It also adds to the existing challenges, coming from the commitment to implement the provisions of the acquis and cope with the rigors imposed by membership. Romania continues to reform and restructure its economy and administration and enhance the business environment. As part of this agenda, the Government seeks to build institutions and implement public policies to fundamentally transform Romania’s economy and society. This requires determination, considerable expertise and resources, as well as popular and external support. Further structural reforms are key to preserving macroeconomic stability and consolidating a competitive market economy, capable of withstanding the pressures of EU integration.

Romania’s economic performance has been remarkable in recent years, although important vulnerabilities remain. Romania steadily converges in income, competitiveness and living standards towards the EU, but the gap remains large. In 2008, income per capita was around 44% of the EU 27 average.

Since 2000, the Government implemented macroeconomic and structural policies which are supportive of growth and disinflation. Advances in structural reform led to improved financial discipline in the enterprise sector. In the World Bank Doing Business 2009 report, Romania was ranked 47th in the world at the ease of doing business. Romania is now a visible and attractive destination for international investors as a result of EU membership. FDI inflows have been estimated at around 5-6% of GDP in recent years.

Progress in reforms has translated into robust annual GDP growth, averaging 5-6%, for eight consecutive years. Inflation and interest rates declined steadily, foreign exchange reserves increased to historic highs and external debt was held to comfortable levels. The competitiveness of the enterprise sector was boosted by important productivity gains, compensating for the increase in labor costs.

The gradual liberalization of trade with the EU led to integration with the common market. Currently, over 65% of Romania’s trade is with the EU, a figure comparable with the intra-EU trade. Driven by strong FDI inflows, the share of goods of higher technological complexity in exports steadily increases.

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