Transcript What about the Quality of Economic Growth? - swiss

Economic Policy Responsibility
Condition for Sustainable Growth
Cosmin MARINESCU
Presidential Advisor
Departament of Economic and Social Policies
The three post-stages:
post-transition, post-accession and post-crisis
 The current context of the Romanian economy, one linked to the 3 post-
stages: post-transition, post-accession and post-crisis.
 In the current context, a new model of economic development would
have the chance to integrate these three specific issues:
1. The issue of property rights and market economy - which is specific
to transition.
2. The issue of institutional change harmonisation – which is specific to
EU accession.
3. The issue of unsustainable growth and financial irresponsibility –
so obvious in the context of the recent economic and financial crisis.
2
The three post-stages:
post-transition, post-accession and post-crisis
 A new model of economic development must leave behind at least
some illusions:
1. The illusion that prosperity can be built on deficit, public debt or
artificial boost of consumption.
2. The illusion that financial and monetary policies can indefinitely
replace real, structural reforms.
3. The illusion that once prosperity is obtained, it will not be lost.
 The recent crisis has revealed this painful truth.
3
How Sustainable is the Present Economic Growth?
 In 2016, Romania will be on the EU’s podium of economic growth,
with a rate of over 4%.
 The economic growth rate is mainly a consumption based growth,
because in the first months of this year consumption has increased by
almost 20% over the same period of last year.
 To be sustainable, not to be short-lived, consumption growth should
be based on a sustainable improvement in terms of productivity and
income.
 We must not be satisfied with just the quantitative side of
economic growth, but also look at the qualitative side.
4
What about the Quality of Economic Growth?
Structural Deficit and the Fiscal Framework
 The fiscal consolidation of last years has recently been reversed, as
the budget balance recorded a substantial deviation, both in nominal
and structural terms.
 This situation is, once again, confirmation that without a strong
political and governmental will, fiscal consolidation cannot withstand
the political cycles.
 We must not forget the lessons of the recent crisis, especially
because investors’ confidence is still fragile and economies are still
vulnerable.
 We must not neglect what the deficit means to the quality of
economic governance: the deficits are the bill by which the
government transfers, in the future, the real cost of present benefits.
5
What about the Quality of Economic Growth?
Structural Deficit and the Fiscal Framework
6
What about the Quality of Economic Growth?
Contribution to GDP growth: the Boost of Consumption
 Consumption is our first source of economic growth, and this is
mainly because of a VAT reduction of about 7 percentage points from
the average rate of 2014.
 In the context of a huge lack of public investment, we also need to
increase state’s administrative capacity.
 We need to implement more major infrastructure projects – as this
seems to be the Achilles heel of our economy.
 In the coming years, it is essential to strengthen our external
competitiveness: we need to increase the exports contribution to GDP.
7
What about the Quality of Economic Growth?
Contribution to GDP growth: the Boost of Consumption
Contribution to GDP Growth
%
%
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
-8
-10
Source: National Prognosis Commission
2005
2006
2007
Final Consumption
2008
-8
2009
2010
Gross Fixed Capital Formation
2011
2012
Net Exports
2013
2014
2015
2016
GDP Growth Rate (Right Scale)
8
Economic Responsibility:
How can we get back on track for a sustainable growth?
 Romania needs a good long-term economic vision, doubled by
responsibility of economic policy makers.
 We must strengthen the trust in our institutions and economic
policies.
 A sign of responsibility for Romania's development is to escape the
trap of pro-cyclical policies, for good.
 We need a realistic governance that goes beyond the short term and
the quantitative side, for the long term and qualitative side.
9
Economic Responsibility:
How can we get back on track for a sustainable growth?
 Consistent structural reforms, especially in SOE’s sector;
 Transparency and fiscal simplification;
 Removal of political ties to public funds;
 Reducing bureaucracy and increasing economic freedom;
 In essence:
 A profound rethinking of the relationship between state and citizen.
10