The government debt exceeded 271 billion RON in mid 2014, being two and a half times bigger than in 2008, the year when the economic crisis hit Romania. Huge amounts were borrowed for paying pensions and salaries in a moment when the state wasn’t able to fulfil its obligations. Despite the expenditure cuts and the attempts to balance the budget, the trend is still visible today: the government keeps on contracting loans for the consumption, without generating productive investments. This makes the debt riskier and riskier, as instead of creating future growth conditions it puts the burden on the next generations.

Growing back the public employees’ salaries, but also increasing the personnel and the goods and services expenditures were translated into new loans. Meanwhile, the Gross Domestic Product (GDP) only succeeded to recover the collapse it experienced during the crisis, going back close to the level it had reached six years ago. As the government debt increases at a quicker pace compared to the GDP, there is a significant growth for the solvency risk which implies a special attention on the behalf of the Ministry of Finances, pointed out a Court of Accounts report on the public debt. The dependency on new credits is so big that the amounts taken from the local and foreign funders surpassed not only the economic growth, but also the exports’ or the tax revenues’ growth. In other words, the current government needs, as they are considered and sized by the authorities, are not correlated to the rhythm of the Romanian economy so that the debt gradually shrinks and becomes easier to refund.

Meanwhile, the Court of Accounts also noticed the loans were bigger than it was necessary for covering the budget deficit. That is to say the government borrowed more and spent more than it had to. And the public expenditure has swollen for the consumption putting at stake the future development. Another effect of this policy is a false economic growth, camouflaging bigger debts and bigger government expenditure. “It’s like I see my neighbour carrying inside his home furniture and electronics, all bought with his credit card, and I’m silenced by his economic growth. But it is in fact a fake growth and it takes place by scarifying the future economic growth, when all this debt accumulated by the government sector, mostly for pensions, salaries and goods and services bought for arguable prices, should be reimbursed”, explained Economy Professor Cristian Paun.


Consumption over and over again


About 90% of the money the government borrows is directed towards the deficit and for refinancing the older debts. “The number of foreign loans taken by the government for funding long term viable investment programs/projects that would generate economic progress and production growth that would implicitly lead to new jobs, in order to achieve a durable economic growth, is too low. The preponderance of foreign loans taken for covering the budget deficit and refinancing the government debt will increase the trade imbalance”, according to the Court of Accounts. More, the institution noticed that some of the loans taken for investments were returned for not being used, despite that the Ministry of Finances paid the interest for those credits.

“The government loan contracting and the bonds issuing policies have to be orientated towards productive expenditure, namely investing in human resources, infrastructure, research, advanced technologies, and other activities with long term positive impact, which can ensure both reimbursing the issued bonds and their interests and the economic development”, mentioned the above quoted paper.

Government’s need for money also blocks the private companies’ access to the internal credit market. Along the foreign loans contracted, usually during the crisis, from the Monetary International Fund and from the European Commission, but also contracted by issuing Eurobonds, the Romanian Ministry of Finances borrows large amounts of money form the local banks.

While the government fulfils its needs and secures certain revenues for the banks, the private business community complains about the lack of financial resources for development. “Between 2010 and 2012, the internal government debt was entirely owned by the private banking sector, thus creating a vicious circle between the government debt and the strengthening of the banking sector. As keepers of population’s and companies’ financial resources, banks have a privileged position. As they have to fructify the resources, the Ministry of Finances offered them, through the government bonds, a certain and non-risky revenue”, indicated the Court of Accounts report.


Budgetary disaster


The Romanian government’s strategy –consumption and no investments- was reconfirmed by the second budget revision, passed on 1 October. According to the same model used for the first revision, the cabinet decided to take money initially allocated for investments and assign it to current expenditure. The most important decision, with serious and numerous effects regarding the economic growth, was erasing 3.9 billion RON initially assigned to the EU funded projects, including motorways. The Motorways and National Roads Company lost almost one billion RON on this occasion. The measure also meant the government abandoned billions of euros offered by the European Commission as non-reimbursable funding for big infrastructure projects (which create jobs and contribute to the long term development). So, on one side the government blocks EU-funded projects with high impact over the growth and on the other it increases the loans taken for consumption expenditure, which indebt the future generations and only ensure the current generation a close to the poverty line life.

For more than several years, the Romanian economical policies sacrificed the long term solid economic growth, based on productive investment, in exchange for a delusive temporary prosperity and electoral benefits for the ruling politicians.







The Court of Accounts advised the Ministry of Finances what to do in order to decrease the risks related to the growth of the government debt:


  • The government debt ceiling should be set by law;
  • Decreasing public expenditure;
  • Contracting foreign loans for investment purposes;
  • Limiting the loans for funding the budget deficit;
  • Avoiding cases when large amounts of debt are to be reimbursed within a short period;
  • Recovering the amounts the Ministry paid as a guarantor.