CRISTIAN PÂRVAN, PIAROM PRESIDENT:"The thinness of the economy cannot be hidden behind the numbers of the GDP"

Emilia Olescu (translated by Cosmin Ghidovean)
English Section / 13 decembrie 2018

"The thinness of the economy cannot be hidden behind the numbers of the GDP"

The estimated GDP for 2019 exceeds 1000 billion lei, Finance minister Eugen Teodorovici has announced on Tuesday

Pârvan: "There are methods for increasing the GDP artificially, through the administered prices"

The thinness of the domestic economy cannot be hidden behind the numbers of GDP, says Cristian Pârvan, the president of the Professional Association of Domestic Investors in Romania (PIAROM).

His statement comes as Eugen Teodorovici, the minister of Public Finance, announced on Tuesday, in a televised show, that next year the GDP will exceed 1000 billion lei for the first time.

"1000 billion is a matter arithmetic, because if the GDP increases, we will obviously exceed 1000 billion. There is a number which, beyond its sonority - comparing our GDP to that of other countries, smaller than ours, it should temper our pride. The message of Mr. Teodorovici is a political one, but economically speaking, the thinness of the economy cannot be hidden behind the numbers of the GDP.

At the same time, we know that there are methods for artificially increasing the GDP through managed prices, which lead to higher than desired inflation, which also contribute to the nominal GDP. For instance, utilities, where we have managed prices, heavily influence all economic sectors and boost this arithmetical calculation".

According to the minister, the estimated GDP for next year is about 1,022 billion lei: "We are making history. We have an estimated GDP of 1,022 billion lei. There needs to be a well debated budget to show where the money is coming from, where it's going, especially on the investment side. We are banking on an economic growth of 5.5%. We want to take the path of a far lower deficit than in 2018. It is an obligation we are taking to the European Union, to the international structures".

In the opinion of Cristian Pârvan, it was wanted in 2018 as well that the GDP would grow more than 5.5%, but that goal wasn't reached, given that the forecast shows a little over 4%. The president of the PIAROM also told us: "It is just as clear that this desire could have been achieved if we had achieved two things that were available - the use of European grants and construction projects. If the construction sector hadn't regressed, and had progressed instead, we could have definitely reached a greater GDP than 5%. Next year, we may reach this target, but only if the same policy is maintained, and particularly the same expertise in leading the projects, because what is missing isn't the money, but the expertise in the management of these projects".

He also emphasizes that both nationally - in the road and railroad sector -, as well as in Bucharest - on the subway infrastructure, in the area of parking lots - we have great difficulties. "We emphasize the mistaken directing of the funds by the local communities. We have work to do, we have money, but unfortunately, the bad management, the weak handling of those who need to manage these projects remains the main issue that we are facing", he concluded.

Concerning the state budget for 2019, which is going to be approved by the Government and sent for debate in the Parliament, Cristian Pârvan told us: "We businesspeople have asked what the money in the budget is being spent on, detailed for each chapter. So that we would be able to know that out of 100 lei invested in education we would have 20 schools with running water in the toilets and the toilet actually inside the school.

Beyond the numbers, we would like to see the public works which help the business sector, budgeted, completed and monitored quarterly at the government level, together with the entire local administration. The mayors, who are very vocal, need to say how many projects they have implemented, how much money they have raised out of all the money that has been asked for. The idea that the local administrations can do what they want with the money and in the end they talk to the government for settlement and never say what they've done with the money needs to stop".

Minister Teodorovici yesterday announced that the draft budget for 2019 would no longer be discussed today in the government meeting, because there is still a need for some aspects on how the money will be spent to be discussed. The minister said, quoted by, that regardless of whether that budget would be adopted late, there would be no deadlocks at the Government level.

The official stressed that this draft needs to be debated, to avoid any sources of uncertainty: "It is very important for everything to be very clear, it is more important than ever. There will be a debate and there will be a very solidly justified budget".

Investors are very concerned about the proposals concerning the state budget and the social security budget for 2019.

This mentions that the budget execution pertaining to the 10 month period for the year 2018 creates concern in the business sector, amid the 25% increase of wage expenses pertaining to the budget sector. The aggressive hike of wages in the central and local administration is one of the major causes of the increased attractiveness of jobs in this sector, to the detriment of the private sector, a phenomenon which results in the significant slowdown of economic growth.

The Association of Romanian Businesspeople (AOAR) thinks that the 2019 state budget should see a freeze in wages in the budget sector, for at least the first six months of the year, and any potential wage increases could be operated in accordance with the real economic evolutions, along with the budget revisions, a tool which has become a practice of all the governments over the last 10-15 years.

As fiscal predictability represents the main concern of the business sector, the AOAR also maintains that there is a need for the representatives of the Romanian government to explicitly confirm the commitment that the 2019 state budget is based on the current version of the Tax Code, and that any short term modifications to it or the introduction of new taxes are out of the question.

Business people are also asking that, along with the state budget, the list of the top 10-20 objectives of national interest be discussed, including those that can be achieved through the use of European grants, thus specifying the amounts stipulated and the physical indicators that need to be achieved quarterly, in compliance with the real stage of preparation of these investments.

Eugen Teodorovici said that the funds dedicated to the Ministry of Education will be increased 15% compared to this year, according to the protocol concluded with the unions in the university and pre-university education, and the healthcare budget will be increased 8%.

The Finance minister mentioned that the budgets of institutions may be bigger or smaller in 2019, depending on how each of them justifies their actions for the next year.

Eugen Teodorovici stressed: "2019 needs to be a year of investments. The budget needs to be put up for vote in the Parliament after it is very heavily debated, for each chapter, for each institution, and the main credit release authorities. It needs to be shown very clearly that it is focused on investments. On one hand we have to honor the investments assumed on the income area of the population, meaning pensions and salaries, but in parallel just as much on the investment side. It was said that if Romania were to build another highway, it would pass Portugal where the GDP is concerned. So it is very important for us as a country to invest. We have carried out some talks on the major infrastructure side, transportation in particular, to know very clearly what we are going to do next year and for people to understand exactly the stage of every project and to keep track of our results for each segment of highways or railroads".

The meeting of the Supreme Defense Council, which was held on Tuesday, was suspended by president Klaus Iohannis, and is set to be resumed on December 19th.

Speaking about the fact that the budget cannot be approved without the agreement of the Supreme Country Defense Council, the Finance minister says that, in terms of the budget, the Parliament is sovereign.

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