Contacts: In Bucharest: Cristiana Zirimis
Czirimis@worldbank.org
In Washington: Kristyn Schrader
Kschrader@worldbank.org BUCHAREST, October 30, 2008 - The 10 New Member States of the European Union (EU10) are affected by the ongoing global financial crisis, and growth will be slower this year and next due to weak external demand and tight credit conditions, says the latest World Bank EU10 Regular Economic Report. The Report, published three times a year to cover economic developments in the new member states of the EU, follows the news this week of an agreement reached between Hungary and the International Monetary Fund (IMF) on a policy package for Hungary to address economic and financial vulnerabilities in the wake of the global economic crisis, with the World Bank ready to provide one billion Euros as part of a program supported by the IMF and European Union. According to the EU10 Regular Economic Report, the international financial crisis intensified since early October and resulted in an acute tightening of interbank markets, bank consolidation and takeovers in developed economies, and a sharp drop in global equity prices. These developments have been accompanied by a dramatic increase in volatility for equities, commodities, and currencies. The financial turmoil has spread quickly to reach to EU 10 countries and credit default swaps have widened. Also, some countries in the region are experiencing a shortage of liquidity reflected in sharp increases in interbank rates. Weakness in external demand and tightening credit conditions will likely result in a decline in exports and investment growth. While further moderate slowdown appears likely in Bulgaria, the Czech Republic, Poland, and Slovenia, other countries are likely to face a larger slowdown, but also from higher rates of economic growth. The Baltic countries and Hungary may face a more prolonged downturn, says the Report. Inflation has peaked in most EU10 countries but remains elevated. Declining energy import prices since midyear and an abundant harvest make it likely that inflation will ease further, but uncertainty remains. “Weak growth will put pressure on living standards, especially in the poorer EU10 countries,” says Ivailo Izvorski, the principal author of the Report. “The importance of properly funding and improving the targeting of social protection systems in these circumstances is becoming increasingly important.” The current account deficits in Estonia and Latvia have narrowed markedly this year, but the Baltic countries, Bulgaria, and Romania still have large external shortfalls. To respond to the international crisis, fiscal discipline must be enhanced through prudent budget management and improvements in the effectiveness and quality of public services to Romanian citizens across the board. Whether in education, health or pensions, social assistance or transport, the agenda for the modernization of public administration and financial management remains long. The approach to the modernization of the public administration and financial management should be systematic and anchored in a comprehensive, results-oriented strategy phased across sectors over several years. In education, for example, modernization measures would aim at improving the quality and relevance of skills imparted to children, but also the access to education, notably at the secondary and university levels as well as among adults and disadvantaged groups. As developed in greater detail in the strategy on “Education and Research for Knowledge Economy”, currently under public debate, this would entail strengthening accountability by tying incentives with performance at all levels of the education system through decentralization, better human resources management, as well as improved monitoring and evaluation systems for both students and teachers. It would also involve responding cost-effectively to the needs to upgrade teaching facilities, review curriculum and teacher training, introducing a student loan program, and support programs targeted to vulnerable groups. Benoît Blarel, Country Manager for Romania, said “The World Bank stands ready to support Romania with the design and implementation of a broad-based, long-term strategy to modernize its public administration and financial management aimed at ensuring that the public sector has the capacity and skills to respond to Romania’s development priorities, the EU convergence objectives, and the aspirations of all its citizens.”
The new EU10 Regular Economic Report is published three times a year. It monitors macroeconomic and reform developments in the new member states of the EU and provides an up-to-date summary of economic developments and in-depth analyses of key current economic policy issues.
For more information, please see:
www.worldbank.org/eca # # #
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