Economic development indicators continue to keep Romania at the bottom of the European hierarchy.
Economic development indicators continue to keep Romania at the bottom of the European hierarchy. For instance, out of the 28 EU countries, Romania ranks last but one in terms of the GDP per capita, according to the latest report made public by the International Monetary Fund. In the community area, only Bulgaria fares worse than Romania. According to the IMF, in 2017 Romania’s GDP per capita stood at 10,372 dollars, over ten times less than the first ranked European country, Luxembourg. As for the living standards indicators, such as the average salary or purchasing power, Romania is still behind most EU states. Nevertheless, the constant economic growth reported by Romania in the past few years is starting to bridge this gap.
Mugur Isarescu, Governor of the National Bank of Romania (BNR) has more: “We have got closer to the EU’s average development level. However, that’s not the case with the whole country, but only with some of its regions. Unfortunately, the lack of infrastructure that should interconnect the historical provinces only makes these gaps permanent. And this tends to turn into a national security concern.”
Figures show that Romania’s most developed area is that around the capital Bucharest. An obvious progress has been made by Transylvania and Banat, located in the west, areas which are closer to central Europe. Less developed are the counties in Moldavia, as they are highly affected by poverty, poor health and education infrastructure and are also the least industrialized. For these reasons the counties in Moldavia are also the less attractive regions for foreign investors. According to a report made public by the Central Bank in 2016, the Bucharest-Ilfov development zone benefited from around 42 billion Euros worth of direct foreign investment, almost 60% of the total amount at national level. By way of comparison, the northeastern region only saw one billion six hundred million Euros in investment, which is about 25 times less.
Under these circumstances, the European policies aimed at bridging the gaps between countries and regions are vital. The most important one is the cohesion policy, aimed mainly at creating strategies for development, through interventions in such sectors as infrastructure, employment, education, business environment and so on. The program consists of a set of policies applied regionally or even locally, based on public investment in the above-mentioned sectors. Implementing these policies depends mostly on the capacity to absorb the available funds.
For the 2014-2020 time frame, the European Commission made available to Bucharest over 22 billion Euros for investment, of which only one billion has been absorbed so far, that is less than 5% of the total amount.
Governor Mugur Isarescu tells us what drawing more funds could mean for Romanian economy: “An absorption rate of 95% in the current multi-annual financial framework would lead, according to the IMF, to a growth of the potential GDP rate by 1.7% in 2022. This means that the GDP goes up to the level of around 5%”.
Alongside a spectacular economic growth rate in Romania, we have also witnessed lately an unwanted increase in the current account deficit. Moreover, the leu/Euro exchange rate reached negative records this January. Mugur Isarescu: “From a macroeconomic perspective, drawing European funds is a desirable solution for financing the current account deficit, thus influencing the stability of the entire economy, the stability of the financial banking system and that of the exchange rate.”
In 2018 the only solution for Romania to attract European funds remains consolidating the administrative capacity. In this respect, though, Romania is only taking baby steps, despite the EU’s serious efforts to support the local and central authorities.