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Opportunity costs of potential investments, foreigners main concern

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Fiscal instability that has been mastering Romania in the past months significantly contribute to the deterioration of the foreign investors confidence, in a global context in which the confidence of emerging economies is dropping, following modest evolutions of global economic activities, and of political uncertainties and geopolitical tensions, says Ruxandra Popescu, policy expert on credit risk at European Banking Authority (EBA).

The present economic growth model in Romania is based mainly on consumption, and fiscal relaxation measures announced and salary increases in the public sector support the continuation of economic growth in an ascending trend. The other side of the coin is made of additional pressures on financing the public system, with impact on public investments. Some fiscal measures proposed ate meant to balance these pressures by intensifying fiscal contributions of the private sector. Unfortunately, in the context in which both investments, as well as the foreign balance lose ground in front of consumption  as main factors of economic growth, additional fiscal measures addressed to the private sector may represent an infringement for investments which could lead to increasing the degree of technology and innovation, an element needed for a sustainable model of economic growth, said Ruxandra Popescu on wall-street.ro.

According to the latest BNR report on financial stability, the tension of macroeconomic balances is a high systemic risk, on the background of the deterioration of Romania s fiscal position, as well as of prognoses for twin deficits in 2017 - values foreseen by the European Commission both for structural deficit and for the budget one  that exceed limits of 1% and 3% respectively.

Recent tensions in Romania did not remain unnoticed at international level. Ruxandra Popescu says that most people she met are wondering about the opportunity cost of potential investments as long as there is no stability at decision making political or economic levels.

To answer these questions is a delicate exercise, since it supposes finding a balance between specialist opinion and the fact I have always tried to have a positive discourse about evolutions in Romania. Mobilizing public opinion is approved and is a force that reduces extreme potential political decisions. For the time being, Romania s macroeconomic situation is stable, while financial stability risks have dropped, which makes this country an attractive destination in the area. But it is a situation rather uncertain to maintain, Popescu explained.

But Romania also has advantages. From her point of view, progress obtained until now is the most important, Romania fulfilling all nominal conditions provided by the EU Treaty.

According to BNR analyses, there is room for the increase of financial intermediation degree, as well as for the absorption of innovation funds. In other words, the best advantage is to know which the manoeuvre area is and how it can be used to the advantage of Romanian economy, Ruxandra Popescu concluded.  

Ruxandra Popescu is employed by the European Banking Authority, an independent EU authority meant to ensure an efficient and consistent prudential supervision level in the whole EU banking sector. Before that she worked at the National Bank of Romania, first within the Professional Training Programme for Young Specialists and then as economist in the Financial Stability Department.

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