The economic growth over potential hides a structural deficit higher than cash deficit, but the structural deficit of today is the cash deficit of tomorrow, which will need finance in conditions that can become adverse for the emergent economies, said on Monday the BNR vice-governor Liviu Voinea within the presentation conference of financial stability report.
“When it’s registered economic growth over potential, as it is registered today in Romania, it’s recommended to save, in the sense of fiscal consolidation. The supplementary revenues obtained from the economic growth over potential allow only on short term the financing of some supplementary expenses, but these expenses are permanent while the revenues are temporary as they will drop ceteris paribus, when the economy will come back to the normal or potential growth trend. Therefore, the economic growth over potential hides a structural deficit higher than the cash deficit,” said Voinea.
He added that the evolution of twin deficits is worrying, as well as the fiscal deficit and the current account, which show a feature of over potential of the current economic growth, which can damage the financial stability on medium term.
„The expansionist fiscal policy started in 2016 by applying the Fiscal Code from 2015 continued also in 2017 leading to the end of fiscal space obtained during the previous period, 2010-2015. The current account deficit from GDP, although at a much lower level than before crisis, evolves divergently compared with the other emergent economies in EU. The structural deficit exceeded significantly the medium term target of 1 percent in 2016 and it is estimated to reach 3.9 percent in 2017. Moreover, the European Commission included Romania in the significant deviation procedure from the medium term objective,” said Voinea.
He mentioned that in 2009, when the Romania’s economy entered in recession, the structural deficit from the previous years transformed in cash deficit and afterwards it took six years of fiscal consolidation.
„This combination of expansionist fiscal-budgetary policy during economic growth conditions over potential and the deterioration of external market for the emergent economies, in general, can increase the volatility and can affect the financial stability on several channels: interest rate, exchange rate, inflation rate,” concluded Voinea.