AmCham Romania: Implementing the investment plan must be the priority of the state-budget execution for 2018

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In AmCham Romania’s vision, in 2018, the most relevant economic performance indicator should be the implementation of the investment plan, in order to transfer the economic growth into wellbeing, modern infrastructure, performing administration and qualitative public services for all, a document posted on the institution’s website reads.

According to preliminary data, the execution of the 2017 budget generated a deficit of 2.9% of the GDP in accordance with the national methodology (or 2.8% in accordance with the European methodology, as communicated by the Ministry of Finance), which indicates the observance of the deficit target of under 3%. Observing this budgetary deficit target has affected the level of public investments. They have only amounted to 67.7% of the planned investments at the beginning of 2017.

Compared to 2016, public investments have decreased by 9.6%, and their GDP share reached its lowest in 12 years.

At the same time, the absorption of European funds and investments based on such financial resources have been significantly under the targets.

AmCham Romania considers that the implementation of the investment plan is a priority in the execution of the state budget in 2018, and can be supported by measures such as:

  • Increasing the public investments, needed to improve the potential economic growth, to reduce the gaps in terms of infrastructure quality and to observe the commitments Romania made in the context of the European agenda.
  • Discarding the pro-cyclic policy, as observing a public deficit target of 3% of the GDP in times of rapid economic growth, reduces the possibility to boost the economy in times of recession. Moreover, in the event of an economic crisis, the Government will reduce investments to a very low level.
  • Consistent efforts to significantly increase the level of EU funds absorption in order to finance the investment target for 2018.
  • Stability of the fiscal policy in order to ensure predictability and encouraging private investments. The consolidated budget suggests risks of exceeding the budgetary deficit target, which could lead to changes in the tax system in order to maintain the deficit within the 3% of the GDP limit. Also, public investments financed from the national budget could be reduced in case such risks occur.
  • Incentivizing productivity growth and the share of economic activities with high added value, including through fiscal policies aimed at human capital retention, especially of those professionals needed to strengthen economic sectors with high added value.
  • Avoiding the increase of the risk margin and of the costs for financing the economy. Romania continues to depend on foreign capital inflows for financing the existing and new debt (public and private). According to the European Commission forecast, in 2018, Romania will register the highest structural public deficit in the EU. At the same time, the budgetary deficit is programmed to substantially deviate from the medium and long term objective that Romania committed to within the Fiscal European Pact (structural public deficit of maximum 1% of the GDP). Under such circumstances, Romania will continue to remain in an area of public finances risk for foreign investors, which will call for higher risk premiums in order to finance the economy.
  • Prioritizing public investments based on their impact in the economy. Significant public investments are most likely to be eligible for financing from the EU and international financial institutions. Financing the budget deficit and investments through loans from the internal market limits the financial resources that can be borrowed by the private sector and increases the costs for accessing such financing. In this context, it is critical for public investments financed from the national budget to be highly efficient.
  • Ensuring transparency and predictability of the major public investment objectives through a multi-annual planning of the public consolidated budget, in order to build confidence in the investment climate.

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