BNR’s Lazea: A century later, Romania returns to similar level of relative development against other countries

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After a century, Romania has returned to the same level of relative growth against other countries, calculated as per capita Gross Domestic Product (GDP), purchasing power parity based, of 59 percent of the European Union average, compared with the 67-percent EU average in 1913, according to data presented by Valentin Lazea, chief economist of the National Bank of Romania (BNR), on Tuesday at a specialist conference.

“The context of the last 100 years is the following: in 1913, smaller Romania, without Transylvania and Basarabia and the subsequently rejoining provinces, had a per capita GDP purchasing power parity based equivalent to 67 percent of the then European average, according to Professor Murgescu, who published extensively on this subject. In 1938, the country lost a good part of this position. Romania still had 51 percent of the European average, and in the years of communism, although attempts were made at forceful industrialisation by trying to modernise the economy, the GDP PPP-based dropped to 32 percent, precisely because the communist economy has some inherent, fundamental flaws related to the non-promotion of innovation and the lack of entrepreneurship. In 2000, after the first 10 years of transition, the indicator had dropped to 26 percent of the European Union average. At the end of last year, in 2016, the per capita GDP PPP-based again reached 59 percent of the European Union average. We can say that after a century, Romania has returned to the same level of relative development against other countries,” Lazea told the Foreign Investors Summit.

He argues that, if we look at the last 25 years, the years after the December 1989 Revolution, we can see some progress that is indisputable. Thus, the GDP has increased more than four times; inflation has fallen from almost 40 percent to minus 0.6 percent in 2015. Unemployment has been more or less constant, apart from a peak in 2000. As regards the government deficit and the current-account deficit, they followed a sinuous path, with ups and downs, and public debt increased to 38 percent.

At the same time, Lazea said that during the last 25 years Romania had periods of important reforms, 1997 – 2006 and 2010 -2014, but they alternated with modest periods.

According to the BNR official, Romania managed to achieve impressive macroeconomic indicators in mid-2015 as a result of the measures taken between 2010 and 2014. Thus, since 2015, Romania has been fulfilling the five Maastricht criteria. In addition, Romania was meeting even the MTO – medium term objective once. Moreover, Romania has managed to meet 13 of the 14 indicators in the scoreboard of the European Semester.

Most of these achievements have been retained, but some are at risk because of pro-cyclical policies, primarily tax and wage policies, he says.

“What should make those present here think is the development in the two deficits, so called twin deficits: the government deficit and the current account deficit. In terms of the government deficit, Romania at the end of 2016 reported the third biggest such deficit in the European Union after France and Spain, after years of meeting the MTO. At the end of last year, Romania had the third widest deficit, without factoring in the 2017 and the 2018 tax relaxation, given that the relaxation extends into the next year. As for the current account deficit, Romania had the third widest such deficit in the European Union, after the UK and Cyprus, at the end of 2017,” said Lazea, according to Agerpres.

He added that Romania’s current potential GDP growth is 3.5 percent.

Lazea also pointed out that redistribution makes people dissatisfied that “the fruit of economic growth” is not felt in everyone’s pockets and that there are discrepancies between the regions of the country as well as between age groups and occupational groups. Among the possible solutions to alleviate inequality, Lazea mentioned the return to aggregate income taxation, progressive taxation, raising the minimum wage, improving education, and increasing workforce mobility.