EU funds to prop up local growth this year

Newsroom 13/05/2013 | 14:47

The absorption of EU funds along with an improved agricultural output and the increase of exports outside the EU bloc are set to supports economic growth this year, said representatives of BCR, the largest lender in Romania, last week.

BCR recently revised its forecast of Romanian GDP growth in 2013 from 1.1 to 1.8 percent. Florin Eugen Sinca, macro and fixed income analyst at BCR, said: “One of the reasons for the revision are the promising perspectives for good agricultural production, above the 2012 level, as a 10 percent gain in output is predicted. Another reason is the above-expectation performance of Romanian exports outside the EU, where we saw double-digit growth.”

Romania and the Baltic nations have the best chance of exiting the excessive deficit procedure this year and this should trigger larger influxes of foreign direct investments (FDI) and EU funds, according to Sinca.

“We don’t rule out a higher GDP growth of 2.5 percent, if we see improvements in the absorption of EU funds in the second half of the year and an exceptional agricultural output.”

According to BCR, the economy could grow by 0.3 percent in the short term for every EUR 1 billion the country attracts in structural and cohesion funds.

Banks to support absorption

Romania’s absorption of structural funds reached 13.3 percent in April. Around EUR 2.6 billion has been used in an attempt to bring the local economy in line with EU standards. Regional Development and Administrative Capacity saw close to a quarter of the available funding  used. Transport, the domestic economy’s sore spot, had an absorption rate of 6.7 percent. This is set to improve as major infrastructure projects that relied almost exclusively on EU funding are close to completion.

Rural development is by far the sector with the highest absorption rate at 60 percent, while in fisheries close to a quarter of the funding has been used.

Ioana Gheorghiade, executive director of the public sector and infrastructure financing division at BCR, says that infrastructure and
agriculture are the main growth drivers that should be sustained by EU funds.

She says that an improved cooperation between lenders and the public authorities should improve absorption in the next EU budget, in which Romania’s allocation has increased to around EUR 40 billion.

“In the upcoming budget, we sense the authorities are open to consulting the banking sector and creating a cooperation to enhance the efficiency of absorption. This has also been seen in other countries, where over time the absorption rate has increased,” Gheorghiade told BR.

BCR’s co-financing of projects developed with EU grants has reached EUR 1 billion. The lender has evaluated over 3,000 projects and financed around 1,000. Gheorghiade said that most of the rejected projects had flaws in the business plans or had an insufficient contribution of their own to the project.

“In principle, in other countries, the bank can have a larger role in the evaluation of projects,” commented Gheorghiade on the benefits arising from the greater involvement of banks in absorption. She added that this could reduce project analysis deadlines.

Ovidiu Posirca

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