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AmCham Romania calls for responsibility in building the 2019 state budget

In the context of the current debates on State Budget Planning for 2019, AmCham Romania reiterates its call for responsibility in budget planning and signals the vulnerabilities and risks presented by the draft budget, in an analysis elaborated by members of the AmCham Macroeconomics Task Force.

In our view, a desirable fiscal and budgetary policy must ensure the predictability of budgetary and fiscal policy measures and the medium and long term sustainability of budget deficit financing to avoid the macroeconomic imbalances that can be generated by the measures to correct the budget deficit, a release posted on the chamber’s website reads.

A necessary development in the  budget planning exercises to increase allocations for public investments and to prioritize significant public investment objectives through multiannual planning of the consolidated public budget,  in correlation with the budgetary resources allocations to incentivize high  added value economic activities needed to strengthen Romanian’s position in the global value added chain.

On the mid and long term, a prerequisite for economic development is a sound and robust financial system that will allow an effective financial intermediation.

As for the budget execution AmCham Romania reiterates its long time recommendations regarding the increase of the budgetary revenues through the modernization of the collection infrastructure and sustained efforts to increase the absorption of European funds.

AmCham Romania’s analysis also warns on the preservation in the 2019 budget of major structural shortcomings confirmed in the implementation of the consolidated public budget for 2018, mainly linked to public spending that far exceeded the targets set at the beginning of the year which led to corrective measures, such as financing the additional expenditures from exceptional and temporary revenue or introducing new taxes.

The budget plan for 2019 also provides substantial and worrisome increases of the public spending by 14% compared to 2018, while the personnel costs’ leap by 18.9% places them at a historical maximum of 10% of GDP.

The public revenue growth targets and the budget deficit level are very ambitious, based on optimistic assumptions about the performance of the economy (real GDP growth of 5.5%) despite the declining forecasts for Romania advanced by international financial institutions, all in the context of the global downturn of the economic growth.

In such context, the risks are that the public revenue targets set out in the budget plan will not be achieved and this will build additional pressure on the budget deficit. In the event of such negative scenario, in order to keep the budget deficit below 3% of GDP in 2019, the Government could reduce again the public investment, so badly needed to finance infrastructure projects or other strategic areas for recovering the gaps Romania has, compared to the EU average or the countries in the region.

In AmCham’s view, the Mid Term Fiscal-Budgetary Strategy (2019-2021) also raises many questions for investors, regarding the consistency and potential of reaching its projections, especially due to the fact that it does not take into account the increases to be generated by the new pension law during this period.

AmCham Romania will continue to follow the debates around the State Budget for 2019 and to promote is recommendations regarding principles to guide a sound budgetary planning and a sound execution, mid and long term, the release concludes.

About Valeriu Lazar