A look at the main provisions of the state budget this year.
Based on an estimated economic growth rate of 5.2%, a Gross Domestic Product of nearly 181 billion euros, a budget deficit of up to 3% of the GDP and an average annual inflation rate of 1.4%, Romania’s state budget for 2017, recently endorsed by Parliament, has given rise to a fiery debate. Here is economic analyst Aurelian Dochia, in an interview on Radio Romania, with more details:
“The European Commission expects Romania’s GDP to go up by 4.4% in 2017. Although this is a very good rate for EU countries, it is lower than the Government’s forecasts and the figures on which the recently endorsed Parliament is built on. And this obviously raises a number of questions with respect to how the year 2017 will conclude, in terms of the state budget, because a growth rate below the 5.2% estimated by the Government means the budget revenues will be substantially lower than expected, so one of two things will happen: either we will have a much deeper budget deficit, which the European Commission sees as very likely, or we will have to cut down expenditure. In this respect, there is not much the Government can do. As always, investments may be once again sacrificed, but probably this will not be enough. In other areas as well, such as salaries, pensions, social security, there are few possibilities to reduce expenditure, so the budget deficit by the end of 2017 will very likely be above 3%.”
In turn, economic analyst Radu Soviani shares the opinion that the economic growth forecast on which the state budget relies is over-optimistic:
“I was curious to see the estimates for 2017 of the National Forecast Commission as well, and to see which economic sectors might fuel this economic growth rate of 5.2%, which in my opinion is greatly over-estimated. And according to the estimates of the National Forecast Commission, in 2017 the contribution of industry to the economic growth will double as compared to 2016. What does this estimate rely on? What fundamental element has changed so that industry and industrial output should contribute twice as much as last year to the economic growth?”
On the other hand, Prime Minister Sorin Grindeanu says investments will be higher than last year:
“Public investments are put at 4.8% of the GDP, which is 0.9% more than in 2016. We have higher budget allocations for certain ministries, such as 2% of GDP for the National Defence Ministry, 26.2% higher funds for the Education Ministry compared to last year, 18% more money for the Healthcare Ministry, 10.3% more money for the National Health Insurance Agency, 83.2% more money for the Agriculture Ministry, 60.5% for the Transport Ministry.”
Among other things, the budget law also provides for a 15% increase of salaries in the public healthcare and education sectors, an increase in pensions as of July 1, the increase of national minimum wages and pensions, the completion of works for the building of 90 km of motorway and the revamping of 272 km of national roads, the award of contracts for the construction of 2,500 nursery schools and of 2,000 schools.
Deputy Leonardo Badea, a member of the ruling Social Democratic Party, emphasises that the figures in the budget law indicate that confidence in the Romanian economy has strengthened, and the measures taken by the Government will include higher consumption rates. He added that the higher individual incomes, the increase in infrastructure investments and the lower taxes were taken into account when designing the public budget. Leonardo Badea:
“The 2017 state budget, in its current form, is intended to boost the wellbeing of Romanian citizens. This is the most important indicator of correct public policies. This view relies on mechanisms that translate the impact of salary increases into aggregate demand, by means of consumption. Romania should discard the economic model based on cheap labour and instead shift towards a model based on skilled labour.”
On the other hand, the Liberal Senator Florin Citu announced that the Liberals, in opposition, had suspicions with respect to the data on which the draft budget was based, and voted against the Government’s bill. Florin Citu:
“This budget bill presented by the Social Democratic Party is, in my opinion, one that fails to ensure economic growth for Romania. It will not bring more money into Romanians’ pockets, it will lead to our missing the budget deficit ceiling and it gives us no reason to hope that at the end of 2017 Romania will have made a step forward, economy-wise. The Social Democratic Party came up with a budget bill designed to satisfy only their clientele, and to sound good to those with little economic knowledge.”
In 2016, according to the National Statistics Institute, the growth rate of the Romanian economy was 4.8%. (Translated by A.M. Popescu)