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Romania's economy could grow by 3.1 percent this year and 3.3 percent next year, secretary general of the Organization for Economic Cooperation and Development Mathias Cormann said on Tuesday at the Romanian gov't Hqs., the Victoria Palace, at the launch event of the second consecutive Economic Study for Romania, conducted by the OECD.
Recently, Romania's economy has been hampered by significant levels of inflation, the energy crisis. Russia's war in Ukraine has contributed to supply chain disruption and difficulties in fiscal policies. Inflation in 2022 peaked at 16.8%. Inflation is still very high, including in services, and we are also seeing increases in the cost of labour. Policy monitoring will need to remain restrictive for inflation to return to desired targets. Following the policies imposed by the National Bank of Romania, inflation has been kept at an acceptable level to avoid too much burden on economic activities, Cormann explained.
Romania needs a clear medium-term plan for fiscal consolidation. Romania's budget deficit has decreased over the past year. Last year it was at 6% or is probably approaching 6% this year, too, so the budget deficit is still too high and the government needs to focus on both revenue and spending. We also have unpredictable revenues in terms of implemented fiscal measures. We must also invest in reducing public debt as a foundation for sustainable growth. At the same time, we have increasing spending pressures, such as demographic ageing, we have fiscal pressures, as more and more people depend on pensions and it is also necessary to find ways to ensure proper social protection in view of additional spending and in the area of defence. We are seeing positive measures, Mathias Cormann said.
According to the OECD secretary-general, keeping the working population active for longer would have positive effects on the economy.
It is also necessary, said Cormann, to have a higher degree of tax compliance, so that we have a digitized financial administration that can enforce tax compliance. Tax exemptions must also be considered, we are considering reductions in income tax deductions and so on. Then, we have to look at the productivity area, an area where Romania has had a very good performance in the past, especially compared to the other states in the area. In 2010, productivity grew by more than 6 percent, but now it stands at 3 percent, OECD's secgen stressed.
According to him, it is important to fully use European funds to increase productivity. Romania receives EUR 28.5 billion in recovery funds, an enormous percentage of GDP and must be invested in infrastructure and transport.
The progress made to reduce corruption and improve governance must also continue. Corruption control is relatively lower for the region, much stricter lobbying rules and much more significant anti-corruption measures need to be introduced to support the reduction of corruption and the application of the rule of law. Also, the use of emergency ordinances must be reduced and such measures are indeed useful to support the capacity of public institutions in Romania, Mathias Cormann assessed.
