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BNR's Lazea: IMF proved that EU funds absorption could lead to 4.5pct potential GDP growth

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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.



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