In 2010 the Boc government invested only RON19.4 billion and only RON5 billion in the first five months of this year. On paper, the Government has many programs, but in terms of implementation, the state’s investments are insignificant, and the poor quality of infrastructure proves the low efficiency of expenditures.
The “state’s capital expenditures” were expected to help the country out of the crisis, but the money has not gone into the economy, but into wages and pensions, says analyst Aurelian Dochia.
There is money, but there are no viable projects, says Cristian Parvan, secretary general of the Association of Romanian Businesspeople.
The International Monetary Fund’s (IMF) Acting Managing Director, John Lipsky, said Monday evening, after the approval of the first review of the new arrangement, that capital expenditures and EU funds absorption needed to be improved at a faster pace. He also said the government needed to make further efforts to reach the budget deficit target of 3% of GDP in election year 2012.
“Important reforms are underway in the health care sector, but faster progress is required to improve capital expenditure and EU funds absorption, tackle arrears, and improve tax administration,” Lipsky said.
In the crisis years 2009 and 2010, public investments failed to act as a major instrument in the fight against crisis, despite promises that they would. The economy has been struggling to exit recession for almost three years, during which time 40,000 companies have gone insolvent. During this time, the VAT climbed from 19% to 24%, inflation reached 8% per year, Romania lost over EUR30 billion of its GDP, and economic growth in the last two quarters has been very anemic.
Analysts have repeatedly said in the last two years that investments, especially in infrastructure, have been neglected, which directly hurt the economy, and its ability to exit recession. The solution implemented by the Boc Government to reach deficit targets agreed with the IMF and the European Commission was to substantially cut capital expenditure.
“In the early days of the crisis, capital expenditure was unfortunately the instrument used to adjust budget expenditures. If we look at the stages of the expenditure adjustments, we see that capital expenditure was cut first, then spending on goods and services, and then wage spending. Unfortunately, capital expenditure was the buffer from which adjustments were made. Now that things have somewhat settled, it’s time to access EU funds and spend more capital,” comments Ionut Dumitru, president of the Fiscal Council and chief economist of Raiffeisen Bank.
(EUR1=RON4.2115)