Public investments in Romania are at record levels, but the impact on economic growth is extremely low, warned Raiffeisen Bank chief economist Ionuț Dumitru on Tuesday, adding that Romania’s fiscal multipliers are also very weak, in the sense that public policies produce extremely low effects.
„Public investments in Romania are very high. Romania has 8% of GDP public investments scheduled for this year, the largest in history, in the EU. There is a huge volume of investments. It seems wrong, even tendentious, to say that they have been blocked. Last year we had 5.7% of GDP in public investments and we barely had an economic growth of 0.9%; this year we have 8% of GDP and we barely have an economic growth of 0.3%,” said Ionuț Dumitru at the annual conference „Budget and taxation 2026: Effects of taxation and economic expectations”, organized on Tuesday by CDG Conferences at the Academy of Economic Studies.
He warned that all studies point to Romania’s fiscal indicators being very weak, which means that the measures produce extremely low effects on the real economy, part of the reason being inefficiency.
„All fiscal multipliers, in all the studies that I have seen, for our economy and for developing economies, show that they are very low and sub-unitary. You put 1 RON into the economy through budget expenditures or revenues and you get less than that, which shows that fiscal policy is ineffective in stimulating the economy. There are many studies that show why that is. For example, we have a major efficiency problem. We have a country full of construction sites. I don’t know how much it shows in economic growth. I have seen such construction sites too; you walk through the Bărăgan region and between two localities we see ditches with bike lanes beside them. Who uses them, we don’t know, but these are construction sites that we are discussing. They don’t have a very large multiplier effect in the economy and it shows in the numbers. When you have such low fiscal multipliers, it is clear that your fiscal-budgetary policy is not that efficient. You have a situation in which the multipliers are stronger on the expenditure side than on the revenue side,” commented the economist.
He warned that since 2015, when fiscal policy became expansionary, ultimately generating the record budget deficits of recent years, „population consumption has increased by 59%, in real terms. There was a 90% increase in real disposable income from wages and pensions. It was a fiscal expansion that led to a strong increase in real income from wages and pensions, which fueled a 60% increase in consumption and a 111% increase in retail sales. In the end, what we achieved with these very strong incentives in the economy was an increase in value added, in GDP, of 32%.”
„If we look at the figures for income growth, consumption growth and value added, it is clear that we have accumulated some very large imbalances, meaning we have overstimulated demand without having a counterpart on the supply side, and this is seen in the accumulation of external deficits. We have practically stimulated our economies by indebtedness to others, not our own economy,” said the former president of the Fiscal Council.
Ionuț Dumitru debunked seven myths:
Myth No. 1 – Austerity could have been avoided – false – the alternative to rational austerity was a brutal correction imposed by financial markets.
Myth No. 2 – If budget spending had been reduced and taxes had not been raised, we would not have had a recession – false.
Myth No. 3 – The budget deficit could have been reduced in a different way (it would have been better to introduce a progressive tax and a solidarity tax on high incomes instead of increasing VAT/excise duties) – false from the perspective of economic growth.
Myth No. 4 – Investments have been blocked – false.
Myth No. 5 – Why doesn’t the budget deficit decrease more in 2025 if austerity measures were taken?
Myth No. 6 – Large-scale economic stimulus measures must/can be implemented.Myth No. 7 – Private investment is not growing because there is negative sentiment – partially true.
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