AmCham: Investments Not a Priority For Romanian Government in 2018

At the beginning of the current budgetary exercise AmCham Romania was signaling through a similar analysis a series of potential vulnerabilities in the budgetary projection for 2018, specifically pointing to the need to observe the investment plan, which is critical in AmCham’s vision for a sustainable economic growth.

The analysis of the budgetary execution for the first nine months of 2018 indicates a budgetary deficit amounting to RON16.8 billion (1.77% of GDP), almost triple compared with the similar period in 2017, when the deficit stood at RON6.8 billion (0.79% of GDP).

Even in such circumstances, 2017 ended with a deficit of 2.88%, severely close to the 3% of the GDP maximum target provided by the Maastricht Treaty, which confirms the concerns regarding the observance of the deficit target in 2018 and considerably reduces the possibilities to implement the investment plan for the current year, AmCham said.

Reducing investment allocations remains a control mechanism for the budgetary deficit. During the first nine months of 2018, expenditures for investments reached RON15.2 billion. Although 25.7% higher on the year, compared with projected investments for 2018, of RON38.5 billion (4.2% of GDP), implemented investments only reached 39.5% (1.6 % of GDP) in the first nine months.

A long term sustainable economic growth cannot be achieved without a real commitment for investments and structural reforms to enhance the impact of investments in the economy and the society, by consolidating the performance of public institutions and increasing the quality of public expenditures, AmCham noted.

Compared with the 2017 results, this year’s budget (following the budget revision approved in September 2018) provides an increase of staff expenditures by approximately RON16.6 billion and an increase of social security expenses of approximately RON7.8 billion.

Compared with the same period in 2017, during the first nine months of 2018 the increase of the personnel expenditures is in line with the forecast allocations, reaching RON12.8 billion, while social security expenditures have already exceeded RON8.5 billion. An increase of RON 2.1 billion is also reported for goods and services expenditures, compared with the increase planned for the entire year 2018.

From a macroeconomic perspective, the management model of the budgetary policy poses several important challenges. The first is the pro-cyclic character of the budgetary policy which in our vision holds a risk for the prudential management of the macroeconomic policies in the context of a maturing economic cycle and of a transition towards a slower economic growth, said AmCham.

In a time of economic growth when Romania also faces a higher demand than the internal market can cover, as well as a labor force shortage, the risk of accelerated inflation also increases. A restructuring of public spending, including social and investments allocations, becomes imminent, the organization noted.

AmCham considers observing the budget deficit limit of 3% of GDP remains a very ambitious objective even in an ideal context when, despite analysts’ predictions, the economy actually grows 5.5. % in 2018 in real terms, the evolution of the budget revenues and expenditures keeps last year’s structure and the investment plan is fully implemented.

AmCham Romania reiterates the need for using investments as an active instrument for a sustainable economic growth by replacing the model of economic growth based on consumption with policies focused on competitiveness and a systematic development of capital, in all of its forms.

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