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Ionut Dumitru: for Romania,60% share of the debt in the GDP would be too much: there would be nobody to buy
Romania has a low level of the debt in the GDP against other European states but we should not compare ourselves or look to the criteria in Maastricht, of 60% of GDP as there would be nobody to finance such a public debt, stated on Wednesday the chairman of the Fiscal Council Ionut Dumitru at the annual conference organised by the Association of the Financial-Banking analysts in Romania.
‘If we look at how the public debt evolved in Romania,it increased very much during the crisis period,as it was inevitable. We are in comparison with the European states, significantly lower than the European average,but we need to say the following: this 60% public debt,Maastricth criterion, should not be an indicator for us in our development stage. At our level of economic development,60% of the GDP would be too much as the most important constraint is connected to the fact that there would be nobody to buy, to finance such a public debt, as the data show that the banking system is over-exposed on state bonds. 22.3% of the banking assets is the exposure of the banks against the governmental sector’ Ionut Dumitru said.
From the perspective of our position at a European level,Romania has the second biggest share of banks’ exposure towards the governmental sector,after Hungary.
‘The public debt has an important role.In the literature there are certain thresholds over which ( the public debt) it is already negative for the economic growth. For the developed countries, the studies show somewhere around 85-90% of GDP, threshold over which the public debt has a negative impact on the economic growth. For the emerging countries, this threshold is much lower. Some authors show 35-40%,others 30 – 60%.For Romania, the National Bank has an estimate between 40 and 45% as being a threshold over which the probability for recession grows very much.We are,unfortunately, quite close to this threshold’ Ionut Dumitru said.
Otherwise, he referred to the relation between the budgetary deficit and the economic growth, mentioning that there is no correlation.
‘There is present in the Romanian society the saying that we need big deficit in order to converge quickly, that others developed on deficit. Unfortunately,this thing is not true. If we look at figures, not the budget deficits are the medicine for growth. If we look at Bulgaria for a long horizon, 1995 – 2017 Bulgaria had budgetary surplus of 2.17% on average, and had a similar economic growth with ours, of 2.99% versus 3.1% ‘ Ionut Dumitru said.
As regards the system of taxation in Romania, Dumitru said that we don’t have a single quota, but a regressive system.
‘We don’t have single quota, we have regressive taxation. If we look at different forms of taxation and as the taxation basis is defined, the taxation quota - and so on, taxation is regressive not even flat taxation’ Dumitru said.