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Florin Citu: the government cut 10 billion lei from investment, the effects will be visible next year
The liberal senator Florin Citu published on Sunday a report where it is clear that the government cut 10.6 billion lei from investments and the effects of this measure will be transposed in the stopping of economic growth, the increase of inflation and unemployment, as well as the increase to 4.8% of GDP of the budgetary deficit.
The estimates of Florin Citu show a deceleration of economic growth up to 3.8% - 4.2% in 2018 ( from 5.5% in 2017) the level of 4.5% of inflation and 5.2% of unemployment and the increase of the budgetary deficit from 3.2% to 3.5% of GDP in 2017 to 4.5% - 4.8% of GDP in 2018.
As arguments for such estimates, Florin Citu shows the evolutions of the first nine months of this year when the government confiscated the reserves, provisions and dividends of all state-run companies’ and ‘cut 10.6 billion lei from investments to reduce the deficit in the budget’.
‘The implementation of the governing programme Dragnea –Valcov deepened the macroeconomic imbalance. The economic growth, based on consumption shows its costs. Prices increase, interests, euro and the dollar against the leu, the budgetary deficit, the commercial deficit, the deficit of current account and the public debt. In this context, the contribution of investments to the economic growth is zero’ shows Florin Citu in his report entitle ‘ the State of Romania after 9 months of PSD governing’
The first 6 months of 2017 surprised as regards the economic growth, says the liberal senator. The salary increases, especially the promises from the salary law increased expectations which are exaggerated among the employees in the public sector. The salary increases in the budget-paid sector, much higher than the increase of productivity, in the context where the salaries in the public administration are higher than those in the private sector – they all created chaos on the work force market.A market of the workforce already affected by the migration of the last years is now troubled by salary promises with increases up to 100% in the public sector. In this context, consumption exploded’.
On the other hand, investments went down both in the public sector and the private one’. In the private sector ‘ the entrepreneurs stopped investments due to the issues on the workforce market’. In the public sector, the investments were massively cut, ‘ to make place for salary increases’.
Florin Citu shows that in the first six months of 2017 the economy grew due to the consumption, and investments did not contribute with anything. ‘This structure of the economic growth increases mistrust in the economy and leads to the reduction of investments ( the yield of invested capital does not cover the risk of investments in Romania). It is a vicious circle which will be stopped either by an economic crisis or by the stoppage of salary promises without connection with the real economy’.
When referring to the budgetary execution the liberal senator shows that this is ‘ surprisingly bad’ for an economy which grows rapidly due to consumption. ‘ The negative surprise, in this economic context appears at the evolution of fiscal income, which are with 1.1 percentage points of GDP lower as compared to the same period of 2016. This evolution represents a worsening of the situation in Q3. After 6 months, the fiscal income were only with 0.7% of GDP lower as compared to 2016. The bad evolution of the fiscal income collected for the budget led to the doubling the deficit at 9 months, 0.81% of GDP against 0.49% of GDP during the same period of the previous year’.
The liberal senator shows that in the first nine months, the expenses for investments which include expenses on capital, as well as those for the programmes of development financed out of internal and external sources were of 12.1 billion lei and 1.4% of GDP respectively. ‘ This means that there are 60% lower than the expenses with the investments in the first 9 months of 2016. From a historical perspective 2017 shows the minimum for investments expenses.It is the year where productivity stands still or even goes down relatively to the countries with which Romania is in competition for the capital’.
As regards the effects of these evolutions, Florin Citu mentions that in Q3 there start to be seen the signs of deterioration with negative effect on long term of the budget structure. ‘ In only several months, the percentage from fiscal income and contributions which lead to expenses with salaries and social assistance grew from 69% to 75%. Thus, there is still a quarter of income for other expenses, including investments’.
‘The priorities of the government are clear. In 2017 the expenses with salaries grow by 20%, those with social assistance grow by 11.7% and those for investments drop by 40%. Under these conditions. the economic growth of the next years needs the same dynamics of the salaries. Otherwise, the economic growth drops suddenly’, Florin Citu shows. He adds that the PSD government ‘ destroyed the structure of the budget, killed investments and the growth potential and especially took Romania out of Europe with one step’.
‘The estimates for the near future of Romania are bleak. The figures, both mine and those of the EU show that Romania heads to a dangerous direction. The only PSD objective connected to the economy for 2017 is the target for the deficit of 2.99% of GDP. To reach this target it is clear that there are new taxes coming for the private environment as well as massive reductions of expenses’ the liberal senator ends.