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Experts say high growth rates on the back of government handouts are unsustainable.15 February 2018
Not long ago, local and international media were full of reports on Romania’s stellar economic growth.
Experts and the European Union, however, are sounding the alarm about whether the growth is sustainable, according to a report by AFP.
The concern is that the strong numbers are almost solely attributable to wage hikes and tax cuts, and coupled with a failure to properly invest in infrastructure and other sustainable public projects, Romania’s boom could be set to slow.
"Economic growth is not always synonymous with development," says Cristian Paun, associate professor of international finance at the Bucharest University of Economic Sciences.
Romania’s economy accelerated in 2017, with real GDP estimated to have grown by 6.7 percent, according to a European Commission country report. Compared with the EU average – 2.4 percent – it is an unquestionably strong performance.
But the report goes on to say that the growth was driven by private consumption, spurred on by tax cuts and wage hikes.
To pay the bill, the state cut spending for highways and other public works, and the fear is that despite generating a momentary jolt of economic activity, the country will be left indebted and vulnerable, according to The New York Times.
“We are making the same mistakes as Greece,” Paun told The Times last year. “We are still continuing to increase the public debt when we are in a boom.”
As AFP notes, Romania’s transportation infrastructure shows the results of under-investment. Romania came 128 out of 138 countries for the quality of its road infrastructure in the latest World Economic Forum Global Competitiveness Report, cited by the Guardian.
There are further concerns of overheating. Inflation hit 4.3 percent in January – its highest level in four years – and is expected to continue in 2018, according to the European Bank for Reconstruction and Development, cited by AFP.
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