Moderately optimistic forecasts for the next four years

The development of private companies, the acceleration of state-owned companies’ privatisation and the restructuring of large debt-making state-owned companies are the main factors that, starting 2001, will positively influence the evolution of the Romanian business environment during the following four years, according to the Economist Intelligence Unit (EIU).

According to EIU, this year’s inflation will come to 40 percent, 10 percent above the rate forecast by authorities, but it might go down to 12 percent by year 2004, while economic growth might settle to 4 percent per year between 2001 and 2004.

British analysts’ projections are anyway more pessimistic than forecasts included by the Romanian authorities in the Medium-Term Development Strategy. The Government estimates that in 2004 inflation will reach 6 percent per year and that starting 2002 we will witness six-seven percent annual increase in Gross Domestic Product.

EIU considers that boosting the development of small and middle-sized companies might contribute to the appearance of a larger number of competitive industries.

Starting from these premises, the Romanian economy may in 2004 register the performance of having a private sector that weighs 80 percent of GDP.

British analysts estimate however that the next four years will be insufficient for the elimination of the red tape that is currently halting the development of business.

At the same time, as far as the privatisation process is concerned, it is quite likely that the current regime favouring some so-called strategic partners should be maintained.

In the short term, EIU anticipates most exemptions from customs and fiscal duties to be annulled, following pressures made by the International Monetary Fund, as well as following difficulties encountered when it came to collecting revenues for the state budget.

As to the fiscal domain, the year 2001 will mark the transition to indirect taxation but chances are low as concerns reducing the fiscal burden that tax payers have to bear.

The new taxation system based on global income is to be applied by 2004, as soon as the new regulations are adapted to those imposed by the European Union.

For the next year, EIU analysts expect large state-owned banks’ privatisation to be finalised, though as concerns Banca Agricola (Agricultural Bank) and Banca Comerciala (Commercial Bank) the deadline established by the Government has already been overshot.

The financial sector is to develop its activity based on gradual reduction of interests’ level and on increasing diversification of the instruments customers can currently be provided with.

At the same time, by the end of 2001, a clear orientation should be established in order to replace commercial protectionism with more liberal policies.

According to the obligations assumed by Romania within the agreements concluded with the European Union and CEFTA, elimination of tariff barriers is estimated to be accomplished by 2004.

EIU analysts expect next year to witness significant progress as concerns leu’s complete convertibility.

As far as labour market perspectives are concerned, next year might bring along a significant rally of real salaries, but unemployment is likely to post increase.

Based on low costs for labour force, over the next four years the economy might benefit from strong productivity dynamics.

EIU also mentions the continuous dependence on foreign financing in the case of infrastructure modernisation in domains such as transports, power and telecommunications.