The reduction of the investments will have a negative impact on economic growth. Ensuring the growth of the economy is one of the biggest challenges of this year considering the significant slowdown of the main drivers of 2011, industry and agriculture.
The government passed the budget revision on Thursday.
Romania needs steps to stimulate the growth of the gross domestic product, and especially high-added value public investment. Stimulating consumer spending was one of the solutions frequently discussed.
However, with the current structure of the Romanian economy, a consumer spending increase inevitably leads to higher imports and deterioration of the current account, for which there are not enough funding resources, after the failure to attract European funds and the plummeting of foreign direct investments.
In theory, the additional resources people should get as a result of the return of the public sector salaries to the level before the cut in 2010 might go towards consumer spending, but there is also the possibility of this money being directed to overdue loans and savings instead.
The investment expense cut in the second half comes after a significantly lower than expected investment level in the first half, which reflects both the incapability to absorb European funds intended for planned investments, as well as an instrument used to put the budget deficit on course for the half-year target agreed upon with the International Monetary Fund, as the Fiscal Council notes.
Unfortunately, Romania stands out in Europe with its very low public investment efficiency. The government has started more than 40,000 investment projects in the last few years and wasted the money. No government in power so far has come up with a list of priorities.
Gyms built in villages with 500 or 600 inhabitants, swimming pools yet to be built for which certain companies were paid hundreds of thousands of euros, contracts signed with companies gone bankrupt or late in completing their work by as much as one year at times. This is what the first internal audit report of the Ministry of Regional Development and Tourism shows.
Investment spending, which includes capital expenses, as well as development program expenses, totaled RON13.8 billion at the end of June. The revision adjusted its level from RON37.3 billion to RON36.4 billion.
Still, despite the lower amount allocated to investments, building a transparent investment budget starting from an analysis of the existing portfolio and identifying the priorities, as well as allocating the necessary financing on a multi-annual basis can lead to a higher economic efficiency of investments, the Fiscal Council believes.
Romania had some of the highest public investment expenses of all European countries in 2000-2011, both as a percentage of the gross domestic product and as a percentage of the total budget revenue, which did not really show in the economy. Romania has the poorest infrastructure in the European Union, which means the money was ineffectively spent. (EUR1=RON4.487)
(English version by Loredana Fratila-Cristescu)