Romania has no alternative to fiscal discipline, but the PNRR can represent the engine of investments and can mitigate the contractionary effects coming from fiscal policy, argues Cristian Popa, member of the Board of Directors of the National Bank of Romania (BNR), in the article „The engine of growth: from consumption to investment”.
„There is no alternative to fiscal discipline. However, the PNRR can represent the engine of investments and can mitigate the contractionary effects coming from the fiscal policy. There are also no alternatives to a certain dose of austerity. The deficit can no longer grow, and the private sector already pays higher taxes. Without budgetary rigor, Romania would quickly become unfinanceable. We are not there, but we depend a lot on the administrative capacity of the public apparatus. MIPE, the Ministry of Finance, the Government, local authorities – all must do their job, work together towards the same objective: investments on European funds, which also have positive effects for the economy. Perhaps the zero priority of the current coalition should be precisely this: bringing billions from the European Union into the country. Next year’s economic growth lies, to a large extent, in this equation. And the key is, inevitably, to MIPE, but the door will only open with ample support from the rest of the ministries and public authorities, which must make sustained efforts for the effective implementation of the projects,” wrote Cristian Popa.
According to him, fiscal consolidation has gained credibility in the eyes of investors, and their reaction, positive in this case, is seen in the interest rates at which Romania finances itself.
„But this window of confidence can quickly disappear. A deviation from the current trajectory, a return to high discretionary spending or a political crisis can bring back exactly the scenario we have narrowly avoided: loss of investment rating, market closures, financing difficulties, capital flight and severe depreciation pressures. This does not mean that measures on the spending side are not necessary, useful and expected by society. On the contrary: I believe they are essential. When the prime minister says that there is waste in public administration, I think he is right, he confirms what right-wing economists have been arguing for years. More than ever, there is a need to make public money more efficient and collect it better. You cannot have taxes like in the West and public services like in the East,” says Cristian Popa.
He mentions that stimulating economic activity with European funds is a temporary measure, but „we don’t have a better one.”
„Rather than debating continuously, on all TV channels, about the imminent collapse of the Romanian economy (a collapse that is no longer coming), we would be better off looking at what we can do, in this context, to make it grow. We must tell the economists on the small screens that the instrument they are looking for is already here: on the agenda, investments with European money, with an economic multiplier effect. Left or right, they should not oppose even more highways, even more modern train sets, fire trucks or rescue vehicles, also modern, with European money. The fiscal package mainly targets consumption and this is already visible in the increasingly weak dynamics in 2025 and 2026. In contrast, investments are less affected and remain in positive territory. If Romania manages to attract PNRR funds and money from the CFM, investments can once again become the main engine of the economy, and economic growth will drive the positive evolution of consumption. An engine powered by European fuel. In addition, the narrowing of the external deficit seems to continue, with two major drivers: the increase in export dynamics in 2025 and the reduction in import dynamics in 2026,” Cristian Popa said.
According to the analysis, currently, consumption is no longer heating up the economy, and investments are starting to bear the brunt and push growth onto healthier foundations.
„When it comes to GDP, even if the economy stops growing at all in the fourth quarter, Romania will still end the year with a GDP approximately 1.3% higher than last year. For the average for the entire year to remain at 0.8% (the cumulative growth of the first three quarters), a steep decline of almost 2% would be needed in the fourth quarter, an unlikely scenario. These developments are also related to statistical effects: it is more mathematics than economics. However, something else is important: we could be in a „hard landing” scenario, a painful and sudden correction. We are not there. We are going through a „soft landing”, a controlled slowdown, necessary after years of unsustainable increases in consumption. It is not a pleasant process, nor easy, society has a hard time accepting the change of pace, but it was inevitable. We will probably have two years of reduced economic growth, two years of resettlement on healthier macroeconomic bases, with smaller, somewhat more balanced deficits. These are not wasted years. On the contrary: in the economy, just like an elastic band stretched too much and released quickly, sudden corrections can be painful, or in other words, even more plastic, „the higher you are (with the deficits), the harder you can fall”. Better a slower, but relatively safe step, than a forced collapse. We prefer a smaller, but healthily built growth”, also wrote Cristian Popa, member of the BNR Board of Directors.AGERPRES
