The International Monetary Fund (IMF) told the National Bank of Romania (BNR) officials that a 95 percent absorption of EU funds could lead to the potential GDP growth to 4.5 percent, BNR Chief Economist Valentin Lazea said on Wednesday, on the occasion of the launching of the 2017 economic outlook for Romania.
“The International Monetary Fund which is now in Romania has made a presentation at the National Bank and said that, if the European funds could be better drawn than at present, namely in a percentage of 95 percent, which is a dream, and if this absorption rate could translate in investments where they are needed, the potential GDP, based only on these two elements, could be 4.5 percent. Therefore the potential growth through the attraction of funds and investments, leaving aside all the others, demographics, health, could stand at 4.5 percent. It is not a story I invented,” Lazea said.
He also showed on Wednesday that Romania entered on demand surplus in the first quarter of 2016.
“Between 2010 and 2015 there was a demand deficit in Romania, which means that in the respective period expansionist fiscal or monetary policies would have been justified. When you have a demand deficit, you can afford taxation and/or monetary relaxation. Starting with the first quarter of last year we entered a demand surplus, therefore we have a positive output, the moment when fueling the fire is no longer justified. Therefore expansionist fiscal policies when you have a demand surplus do nothing but fuel the fire exactly when you don’t need that,” Lazea said.
According to him, policies must be countercyclical.
“How we reached demand surplus after demand deficit? Through the fact that the GDP advances years in a row faster than the potential GDP. A normal growth, not affecting, is somewhere around 3 percent per annum. This is the potential at the current factor endowment. This potential GDP can be increased through structural reform measures. The fact that we had growth over the potential GDP was OK when there was a demand deficit, but now, through the over potential growth, when we already have demand surplus, it starts to be a problem, because sooner or later, it will lead to inflation pressures and to other kinds of pressures on the governmental debt and its funding,” the BNR economist also showed.
“Workforce underpaid, capital overpaid in Romania”
Workforce in Romania is underpaid, while capital is overpaid, and when we talk about wages we have to strike some pins, meaning solving the problems with roads, production and justice, senior economist of Romania’s National Bank (BNR) Valentin Lazea said Wedenssay.
“Workforce in Romania is underpaid, while capital is overpaid. The capital takes up almost 60 percent of the National Gross Income (NGI), and the workforce almost 40 percent. Should we wonder why that is the case? It is because foreign and/or Romanian entrepreneurs draw their plans including all the measures they have to pay for, the trips they had to take that use up time and incur spending, production that entails spending, legislative affairs that entail the use of lawyers, jurists and so on, and all this is reflected on small wages,” Lazea told the release on Wednesday of a 2017 economic report on Romania.
In his opinion, Romania has to send the pins flying, meaning it has to solve problems with infrastructure, production and justice.
“We in Romania have to learn that if we want to talk about high wages we have to send some pins flying, namely to solve problems with infrastructure, production, justice and so on. Until then, we can gather for conferences and brag about how well our capital has it,” said Lazea.
Head of the European Commission Representation in Bucharest Angela Filote told the release conference of the report that Romania might this year record the highest increase in the national budget deficit in the European Union, but the Romanian Government has given assurances that there should be no reasons to worry about that.
Under the winter economic forecasts of the European Commission released in mid-February, Romania should see a widening of its government deficit to 3.6 percent of the Gross Domestic Product (GDP) in 2017, from its autumn forecast of 3.2 percent, while in 2018 it should further widen to 3.9 percent of the GDP.
The European Commission also upwardly adjusted to 4.4 percent its economic growth estimates for Romania in 2017, expecting a slowdown to 3.7 percent in 2018.