Garanti Bank predicts 2 percent hike in Romania's economy in 2013 on boosted EU funds absorption

The Romanian economy is estimated to grow by 2 percent of GDP this year, sustained by a higher absorption of EU funds for investments and the restart of the privatization program, considers Rozalia Pal, chief-economist at Turkish Garanti Bank.

The political stability and the good cooperation with the IMF build Romania’s credibility that leads to a higher level of foreign direct investments, according to the Garanti Bank economist. The recommence of the privatization program in the right way could help the Romanian economy as this would revive the industrial production.

“Through the prioritization of structural funds it is possible for the absorption of structural funds to reach 50 percent from the current 22 percent, which would represent payments of EUR 5 – 6 billion for beneficiaries,” Pal told BR. She added the government has allotted EUR 3 billion for the co-financing of structural projects.

A 2 percent economic growth would take the GDP to the pre-recession level of EUR 140 billion, which is a target set by PM Ponta. The government has made a prudent growth forecast of 1.6 percent of GDP, according to the Budget delegate-minister Liviu Voinea.

With a public debt of 35 percent of GDP, Romania is the fourth least indebted EU member.

“As Romania has a lower default risk, there is an increased attractivity for investors, and investments mean economic growth and more freedom of movement for the Ministry of Finance,” said Pal.

The economist reckons the RON/EUR exchange rate will reach 4.35 by yearend, because of both short and long term capital inflows.

“An improvement of the investment environment has already happened at the end of 2012 and it is visible in the RON appreciation and in a drop in financing costs,” stated Pal.

On this background, the National Bank of Romania may bolster its reserves by foreign exchange acquisitions, to reimburse some of the public debt, according to Pal. Romania has to reimburse EUR 840 million in the first quarter.