The American Chamber of Commerce in Romania (AmCham Romania) signals potential budgetary slippages and emphasizes that the short term economic benefits of an optimistic budget can generate increased costs both for the business community and the population at large.
In this context, the organization points out that the very optimistic budget projection may jeopardize the macroeconomic balance. The current budget targets a growth of 5.2 percent, above the more cautious forecasts issued by top institutions such as the European Commission, World Bank, International Monetary Fund or local banks, which puts GDP growth between 3.7 percent – 4.4 percent, AmCham shows. The income levels at the consolidated budget and the increasing expenses recently reported for January 2017 confirms the concerns expressed to this issue.
Expenditure-investment ratio does not support the objective of creating high value added services in the economy. Although, the economic growth based on consumption encourages some sectors on short-term, an increase in consumption can result in higher inflation, this affecting the sustainable economic growth and purchasing power of the population on the medium term.
A healthy economic upsurge requires correlation of wage growth with their performance and productivity, and with improving the quality of infrastructure and services.
“While we acknowledge the legitimacy of the premises on which the 2017 State Budget is built, pursuing economic growth and increasing the population’s wealth, we believe that the budgetary objectives must be connected to the economic realities and potential slippages adjusted before they impact the economic performance,” AmCham notes.
Overbudgeting the EU funds absorption level does not account for the poor performance registered by Romania in this field. Moreover, the conditioning of some major investment expenses – RON 4.5 billion of the total of RON 9.9 billion – of financing from European sources of can lead to the failure of the investment commitments, due to low absorption rate of European funds, which will limit the economic growth target.
AmCham Romania draws also the attention that the insufficient allocations for budgetary expenditure, such as pensions and social assistance or interest, put high pressure on the consolidated budget.
“It ‘s important to emphasize that according to Fiscal Council estimates, if the identified risks will materialize, the budget deficit in 2017 would be at least 4 percent, a worrying level, both by reporting to the Stability and Growth Pact and to the economic principles of counter cyclical management of fiscal policies,” the release reads.