AmCham Romania, one of the biggest business organizations representing foreign and local companies, signals potential budgetary slippages this year and believes that the short term economic benefits of an optimistic budget can generate increased costs both for the business community and the population at large.

“While we acknowledge the legitimacy of the premises on which the 2017 State Budget is built, pursuing economic growth and increasing the population’s wealth, we believe that the budgetary objectives must be connected to the economic realities and potential slippages adjusted before they impact the economic performance,” reads an AmCham press release.

The organization has identified five vulnerabilities in Romania’s 2017 state budget, namely an overestimation of the economic growth for this year, a low level of public investments, a possible overestimation of the EU funds that Romania can absorb, an underestimation of the expenses with pensions, welfare, and interest on the state’s loans, and the use of commitment appropriations without a multiannual budget.

For example, the budget for 2017 is based on a 5.2% economic growth forecast while the European Commission, International Monetary Fund, and other international financial institutions and local banks forecast that Romania’s GDP will increase by 3.7-4.4%. The AmCham is also worried that the Government’s investment plans are very much reliant on EU funds, namely RON 4.5 billion of the total RON 9.9 billion investments should be covered from EU funds, although Romania has a poor track record in absorbing EU funds. Moreover, the expenses with pensions, welfare and interest may be significantly higher than the ones included in the 2017 budget, according to AmCham.

If these risks materialize, they could lead to a budget deficit of over 4% of the GDP, according to estimates from the Fiscal Council, an independent body that issues opinion about Romania's fiscal-budgetary policy.

“For the business environment, which we represent, budgetary planning should offer stability and predictability, but the things we have mentioned raise questions related to the sustainability of the Fiscal Budgetary Strategy for 2017-2019,” according to AmCham. “We reiterate that it’s very important to avoid any deviations that could lead to canceling investments and interventions in fiscal policies, the increase of financing costs in the economy, for the business environment and population, on the background of economic fluctuations.”

The 2017 budget proposed by the PSD-ALDE Government led by Sorin Grindeanu provides a 14% increase in budget revenues and a 13% increase in expenses compared to 2016, despite several tax cuts that have become effective earlier this year. The Government has promised to keep the budget deficit under 3% of the GDP.

The European Commission recently warned the Government that the budget deficit may reach 3.6% of the GDP this year, due to an over optimistic budget. Many local economists are also skeptical about the budget indicators and expect negative amendments.

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editor@romania-insider.com