Consumers take back seat in $19bn Romanian GDP revamp proposal

Bloomberg

Romanian consumers, the driving force behind one of Europe’s fastest-growing economies, must step aside under a new growth plan that will funnel €17bn into manufacturing and production, according to Deputy Prime Minister Costin Borc.
The strategy — drawn up with the central bank and President Klaus Iohannis — runs to 2020 and envisages gross domestic product jumping by an average of 5 percent a year, said Borc, who’s also economy minister. Targeting 16 key areas, from agriculture to education, the proposals will also improve infrastructure, he said in an interview.
Fiscal policy in the EU’s second-poorest economy has recently focused on pre-election tax cuts and state-wage increases, emboldening shoppers and propelling growth to one of the bloc’s fastest paces. The new plan would mark a change of tack after some officials warned the current trajectory drains resources from longer-term investments. Borc is a member of the nation’s first technocratic government since the fall of communism. It’s set to step down by year-end.
“We made a mistake by trying to stimulate consumption beyond our capacity to produce goods internally and the effect is visible in the trade imbalance,” Borc said in his office in Bucharest. “Once you have production capacity, it also warrants infrastructure — roads or digital networks — it warrants education, health care and cultural development.”
While retail-sales growth reached 19.5% from a year earlier in March, industry and exports have lagged behind. Meanwhile, imports have surged, advancing 9 percent in the first five months of 2016. GDP rose an annual 4.3 percent in the first quarter.
Financing sources for the five-year growth strategy have been identified and can be reallocated from the budget if a political consensus is reached, according to Borc, who said the fiscal deficit won’t breach EU limits. PM Dacian Ciolos’s government is seeking to build the necessary support for the plan to continue after elections in November or December, he said.
Outside the strategy proposals, Borc said politicians should continue holding initial public offerings or selling minority stakes in state-owned companies such as Hidroelectrica SA and the Constanta Port. The transactions are part of an agreement with the IMF and are aimed at boosting efficiency.