The Economist’s EU-SEE Summit, Day 2: A vision for Romania’s future development

Romania aims to achieve 5-6 pc annual economic growth in medium term

In this period, the economies of southern Europe can increase, although prospects for economic development worldwide and in Europe have been revised downwards. Romania can achieve an annual economic growth of 5-6 percent in the medium term, necessary to reach the development level of the West-European countries, provided it continues to take action to maintain the fiscal discipline.
“Southern Europe can increase, despite the prospects for economic decline in the euro zone and I believe that at this point, we must accelerate the engine of growth in the region. For Romania, the growth prospects for 2014 have been revised upwards (ed. note by the International Monetary Fund), from 2.2 percent this spring to 2.4 percent this autumn. It was no mistake or good luck. It was the result of concrete measures we have adopted to achieve economic growth in the medium and long term,” Minister of Public Finance Ioana Petrescu said.
She also mentioned that this year Romania’s budget deficit target is 2.2 percent, and the structural deficit target no more than 1.7 percent of GDP.
Romania’s budget deficit was 2.2 percent of the Gross Domestic Product (GDP) in 2013, or RON 14.247 billion, down from 3 percent of the GDP (RON 17.718 billion) in 2012. The previous figures were 5.5 percent (RON 30.898 billion) in 2011 and 6.6 percent (RON 35.48 billion) in 2010, the Statistical Office of the European Union (Eurostat) announced on Tuesday, when it published reviewed data. Romania’s budget deficit in 2013 was thus below the 3 percent of the GDP ceiling demanded by the European Union.

SEE’s banking systems, “dominated by foreign banks”

The banking systems in South-Eastern Europe are dominated by foreign banks, they have a high share of foreign currency loans and high levels of bad loans, says Governor of National Bank of Romania , Mugur Isarescu, adding that he does not see a possible return to pre-crisis lending level. European Central Bank financial stress tests should not reveal any surprises for the Romanian banking system, the Bucharest central bank’s governor also said Tuesday, despite funding from the West having fallen.
The central bank official told reporters funding from foreign banks for their Romanian affiliates had fallen by EUR 9 billion over the past five years.
The banks must allocate finance resources to productive investment, the financing quality being more important than quantity, and to avoid burdening the quality customers with costs from misallocation in the past.
In Romania, the foreign currency loans fell below 60 percent, predicting that it will reach even below 50 percent.

Profitability levels of SEE banks to remain much lower than in pre-crisis

The biggest challenge for the decision makers in the SEE countries is cleaning up the balance sheets of the banks and the quality improvement of the assets in order to be able to re-start engines for credit activities and economic growth. “„ Balance sheet cleaning is important, since it would improve the assets quality and lay ground for financing the economy. Together with a return of loan growth, they will set the stage for profitability recovery on medium and long term. However, SEE banking sector profitability will be much lower than pre-crisis levels, since it will face ongoing burdens from higher capital requirements, tightened regulation and implementation of various sets of structural reforms. Moreover, bank margins in SEE tend to be positively correlated with interest rates and the current low interest rate environment is not supportive of high profitability compared to the pre-crisis period” said Traian Halalai, President of EximBank.
He added that although the performance of individual markets on medium and long term will greatly vary, the SEE banking sectors will all depend crucially on economic growth, sector restructuring and implementation of economic reforms. There are also other economic risk factors to the sector performance, including geopolitical risk, currency and interest rate risk, competition, development of capital markets, etc.

Romania to support adopting a single goal to reduce CO2 emissions

Romania will back the adoption of a single target for carbon dioxide emissions reduction and also the support to be granted to the newly acceded states to the European Union in the European Council, on Thursday taking place in Brussels, said Minister-delegate for Energy Razvan Nicolescu. In his opinion, Europe must look at other decisions taken in other parts of the world in regards to climate change. “There is a proposal of the European Commission: Europe must continue to set targets to reduce carbon dioxide emissions, but also new targets regarding the energy efficiency and renewable resources”, said Nicolescu. In another context, the Romanian official said that up to now USD 1 billion was invested in the projects of reactors 3-4 and nobody will accept to give it up, no matter if it will be ready in 2021, 2025 or 2027. “There are partners interested, but nothing has been decided up to now,” said the minister. Recently, Nuclearelectrica, the state-owned nuclear power producer, announced that China General Nuclear Power Corporation (CGN) was selected as investor for the two nuclear reactors. The Chinese company was the only bidder in the tender procedure organized by Nuclearelectrica