Threats to Romania's economic stability have never been bigger because of uneven growth, expansionary fiscal policies and draft legislation that would enable mortgage holders to stop paying loans, Central Bank Governor Mugur Isarescu said on Tuesday.
His comments are the latest in a series of warnings from the bank, the International Monetary Fund and the European Commission that domestic policies ahead of two elections later this year have heightened uncertainty.
After painful austerity cuts in 2010, Romania used a string of aid deals from the IMF and the European Union to shrink its budget and current account deficits, ultimately posting some of the bloc's highest growth rates. But double-digit public sector wage hikes and tax cuts late last year, coupled with further cuts planned for 2017 and a bill that would allow borrowers to give up their mortgages retroactively and without conditions were undermining the economy.
"Personally, I have never in 25 years seen bigger dangers to Romania's economic and financial stability," Governor Mugur Isarescu told a financial seminar.
"We are facing a real risk of losing at least a part of such hard-earned progress. The outlook of a budget deficit of almost 4 percent of GDP in 2017 will categorically put public debt on an upward path and tells us ... we have not learned enough."
On Monday, the IMF warned Romania that its budget deficit would miss the government's own target of 2.8 percent of gross domestic product and overshoot the European Union's 3 percent ceiling next year unless planned tax cuts were postponed.
Isarescu also said that although wages have risen substantially and the economy is growing, living standards and real convergence were not evenly reflected across the country. "There are tensions, discontent, many people and small companies are still having it hard," he said. "After all these years, we still do not have a motorway crossing the Carpathian mountains. Half the towns in the country do not have sewage or running water. We need investment and truly thoughtful public spending."
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