A CRITICAL ANALYSIS OF THE FACTORS LYING BEHIND RECENT PUBLIC DEBT ACCUMULATION IN ROMANIA

• Main Author: Irina BILAN
• Format: Article
• Language: English
• Published: Technopress 2014-12-01
• Series: Journal of Public Administration, Finance and Law
• Online Access: http://www.jopafl.com/uploads/issue6/A_CRITICAL_ANALYSIS_OF_THE_FACTORS_LYING_BEHIND_RECENT_PUBLIC_DEBT_ACCUMULATION_IN_ROMANIA.pdf

Following Romania’s accession to the EU, its public debt expressed as a share of GDP has seen a steep upward trend. Although this situation has not been unprecedented, as public debt massively increased in many other European countries once the economic crisis emerged, and the current level of Romania’s public debt is still well below the European limit of 60% of GDP, the previous experience of other developing countries tells us that this situation cannot be appreciated as a comfortable one. Against this background, it is important to investigate the factors that led to the recent growth of Romania’s public debt, to see if their action is only temporary or, on the contrary, if they persist over time, and to see if, by the promoted public indebtedness policies, prerequisites have been created to foster economic growth, as a rational support of further debt reduction. Thus, the aim of our paper is to identify and critically evaluate the contribution of different factors underlying the growth of Romania’s public debt in 2007-2013. Our analysis is supported by data (on public debt, public budgetary revenues, expenditures and budget balance, inflation rate, GDP growth rate, etc.), collected from the reports of the Ministry of Public Finance of Romania or databases of international institutions (European Commission, International Monetary Fund).The main conclusion of our work is that although, like in other European countries, the economic crisis has contributed, through its effects on the GDP growth rate and budget balance, to the increase of Romania’s public debt, other specific and more persistent factors have also had an important contribution (as the pro-cyclical fiscal policy, the tax evasion, the large volume of arrears to public budgets, especially of public companies, the relatively low tax base, the high expenses on goods and services, salaries or even the interests payments on public debt).