CIBR Blog

Romanian economy with  the EU integration
 
SWOT matrix and analysis
 
 
Strong points

• A high level of economic growth (5%, average) in comparison with the EU developed countries
• The level of the external debt and of the public debt is low
• The increase in the rates of the labour force occupation
• The continuation of the disinflation process (up to 6%)
• The more correct application of the antitrust legislation and the growth of the administrative capacity of the Competition Council
• The functioning of the notified state aid system
• The prohibition of granting the state aids is inappropriate with the European Principles.
• The growth of the BNR international currency reserves to 6,9 months of import coverage.
• The reduced rate of unemployment (5.5%) in comparison with the EU-25 average (6%)
• The growth of the public investments into infrastructure, public works, constructions, telecommunications, through the communautary fund entries.
• The increase in the competition of farms of average and big dimensions that will benefit from warranted prices, facilities when entering the unique market etc.
• The exports towards EU will increase following the adhering

 
Weak points

• The growth of the consumption demand combined with the appreciation of the exchange rate, will lead to an unbalance in the current account (10% in 2006 and 12% in 2007)
• The growth of the public expenses will lead to the growth of the budgetary deficit and the appearance of the crowding out effect.
• The lack of funds in the public budget may lead to restrictivity and to political risk
• Reduced prediction in the fiscal domain
•  Inconsistent mix between the monetary politics and the fiscal politics
• Fiscal support represents a long-term and medium-high risk (even if things aren’t the same for the short-term risk)
• The growth of the current account deficit. The rhythm of growth of the imports will be almost double in relation to the rhythm of growth of the exports
• The growth of the number of bankruptcies in the case of the firms that don’t approve restructuring measures before adhering
• The growth of the unemployment rate
• The non-functioning of the bankruptcy law
• The weak flexibility of the labour market
• Reduced absorption capacity of the structural funds given by the European Union
• The reduced level of description of the markets in the public utilities domain
• The growth in the price of the agricultural products immediately after adhering
• The high level of poverty

 
 
Opportunities
 

• The acceleration of the growth of  the GDP in 2007 in basis of the growth of investments as a result of the decrease of the interest rate, the growth of direct foreign investments, the multiplying effect of the growth of public expenses for the co-financing of the EU projects
• The continuation of the disinflation process through the restrictive monetary politics promoted by the BNR – Romanian National Bank
• A higher level of opening of the markets and the price liberalisation in the public utilities domain
• Pre-adhering assistance and integration from EU for Romania – ISPA, PHARE, SAPARD
• The creation of new work places through relocalisation of the EU firms in Romania
• The decrease in the contributions to the social securities will lead to the reduction of the black labour market and of the tax dodging
• The availability of the non refundable structural    funds in the period 2006-2013
• The shake - out will create less competition on  the internal market for companies that have invested to meet the EU criteria – and give a jump start to companies that use the structural   funds for further development
• The development of the regions with high   attractivity for investment will create more    consumers with purchasing power
• Some regions that where behind will get extra    attention for investment because some regions    become to expensive
• The communities have access to structural funds to improve the local infrastructure
• The EU funds will generate some funds and     special programmes for SME ’s that want to    develop (direct funds and through special    programmes for bancary loans for investment)

 
Threats
 

• The loss of credibility of BNR by surpassing the inflation target proposed for 2007
• The elimination of the anchor concerning the maintenance of the macro-economical stability by non-concluding the agreement with IMF
• The rhythm of growth of the public debt service bigger than the IBP rhythm of growth
• The low reduction level of the quasi-fiscal deficits
• The growth (again) of the arrears
• The way in which BNR makes the compromise between the growth of the interest rate for the decrease of the inflation rate towards the target level and the entries from speculative capitals, as a result of the attractivity of the interest rate
• Divergence between the ‘Maastricht’ criteria (the reduction in the inflation and the limitation of the budget deficits) and the putting into practice of the community acquis and of the co-financing of the infrastructure projects, as well as the growing needs for investments for the modernisation of infrastructure and of public services
• Real exchange rate appreciations (the Balassa-Samuelson effect) leading to the growth of the inflation – conflict with the demands of stabilisation of the exchange rate and of the reduction of the inflation, compulsory for the adoption of the EURO currency
• Bad correlation between the growing rhythm of appreciation of the exchange rate and the rhythm of growth of the average productivity
• The growth in the private consumption in 2007 as the main engine for the economic growth correlated with the appreciation of the Leu face to the main currencies, will lead to a strong deterioration of the current account situation (10% in 2006)
• The deterioration of the external position of Romanian economy (the quick growth of the current account deficit up to the level of 8.5 billion EUR in 2006 – approximately 10%from the GDP). Causes: the growth of the energy imports, capital goods and transport etc. associated with the decrease of the exports, because of the appreciation of the Leu, the end of application of the multi fibre agreement, that supposed the privileged presence of the Romanian firms on the European textiles market etc.
• The risk concerning the sustainability of the current account deficit as a result of the decrease of the direct foreign investments.
• The weak implementation of the mechanisms of participation to the Structural Funds of the European Union (absorption of only 10-15% of the European funds destined to Romania)
• The possible VAT growth from 19% to 22%, that will lead to an emphasis on the inflationist pressures
• The crisis of the social system
• The loss of a qualified labour force through migration to the richer EU countries
• National firms are vulnerable face to the “plundering” by the transnational EU firms 
•  Romania has the lowest rating touched by a country the precursory year of the EU adhering (because of the inoperative mix of European politics)
•  Romania didn’t implement the software mechanism for the monitoring of the state budget collections
•  The mechanisms and the institutions for the increase of the absorption capacity of communautary funds weren’t created
•  The mechanism of allocation of the EU subventions for agriculture is not functional

 
ir. Freddy M.E. Jacobs
PBS Worldwide
frjacobs@pandora.be
0032478/331.799
WWW.PBSWORLDWIDE.COM