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Warning signals

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By Cristian Cojanu
In a time when the focus of the ruling coalition seems to be more and more out of touch with the country's actual development needs, there is an increasing number of red flags for the economy. For example, a quick glance at the statement released by the IMF at the end of its recent mission to Romania should be enough to send a few chills down the spines of local political decision-makers. Meanwhile, the business community is showing increasing dissatisfaction with the general conditions offered by the local business environment.
Coming back to the IMF’s statement, it noted that in spite of the strong economic expansion, without policy changes, Romania’s growth would “turn increasingly fragile.” It said: “Monetary tightening alone would have to push interest rates to a level that weighs on investment and competitiveness. Continuing sizable fiscal deficits, especially with low investment spending, would also reduce the space to support the economy in future downturns and weaken Romania’s growth potential.”
The IMF expects growth to decelerate from last year’s 6.9 percent level, quoting multiple factors: “a waning fiscal impulse, low public investment, slow progress on structural reforms, and tightening financial conditions.” It added: “We project GDP growth to be about five percent in 2018 and to slow towards three percent over the medium term. Risks to this outlook are tilted to the downside. Global financial volatility, further deterioration in fiscal and external balances, or weakening of institutions could dent investor confidence in Romania. The continuation of current expansionary policies would undermine the country’s capacity to withstand a severe shock.”
In this context, the Foreign Investors’ Council said the latest results of the FIC Business Sentiment Index confirmed the steep decline in trust recorded last year, even though 54 percent of respondents forecast a growth in revenues. 
“Over 70 percent of respondents said that events in the past six months (the reference period) have lowered their trust in the local business environment and believe this has deteriorated,” an FIC statement noted.
The FIC Business Sentiment Index has identified several structural constraints holding back new investments: “68 percent of respondents believe the available workforce is not competitive enough compared to other peer locations; 85 percent believe the Romanian fiscal system is uncompetitive and we believe this is mostly due to the constant changes of the Fiscal Code and the lack of modernization of the fiscal administration; 96 percent said they face difficulties in operating their business due to regulation that is unclear and in constant flux; 92 percent characterized the available infrastructure as uncompetitive which is no longer a surprise for anybody; 100 percent of respondents have said bureaucracy is a burden compared to other locations in Europe where they do business and respondents have also unanimously complained about the transparency and consistency of public policy.”
The FIC also pointed out that foreign investments reached 4.5 billion euro in 2017, slightly up compared to 2016 and 2015, but still far from the pre-crisis volumes recorded in 2007-2008. It added: “The FIC message for policy makers is that as long as existing investors harbor the current perception regarding the local business environment the chances of attracting significant new investments will be slim. With this level of trust, it is unlikely Romania will attract new investments in areas with continued high unemployment, in key economic sectors like utilities or in public-private partnerships which the Government is currently championing.”
Meanwhile, Business Arena will continue to keep an eye on all the issues affecting the business community, reflecting its views, hopes and challenges.

The editorial is also available in our print edition of Business Arena.

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