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Real public investment beyond defence expenditure

de Alexandra Pele , 19.11.2018

Nearly half of public investment that burdens this year’s statistics have been made by the Ministry of National Defence (MApN), according to the detailed data on the budget implementation in nine and ten months.

In the absence of budgets for endowing the Army, the general consolidated budget would have seen a 20-25% decrease in capital expenditures and continued the tendency to record new historical minimum levels from this point of view, year after year.

Prime Minister Viorica Dancila announced at the end of October that state’s investments in the first nine months of 2018 recorded increases of more than 25% compared to the previous year.

“The budget implementation for the first nine months shows the attention paid to investments and meeting the Government’s commitments to increase the incomes of the population,” the Prime Minister said at the beginning of a Government meeting.

Representatives of foreign investors have shown, though, that despite these increases, the share of investment plan implementation is below 40%. In other words, “growth” is more a base effect (this year’s level is related to the very low 2017level), plus the military expenditure and acquisitions – and less an indicator of the importance that investment has to Dancila cabinet.

In the first nine months of 2018, investment expenditures, including capital expenditures, as well as those related to development programs financed from domestic and foreign sources, amounted to RON 15.2 billion.

Although 25.7% higher in absolute terms compared to the same period last year, in relation to investments planned for this year, of RON 38.5 billion (4.2% of GDP), the implementation level on first 9 months was only 39.5% (1.6% of GDP), is shown in an AmCham analysis.

Defence budget saves investment statistics

The budget of the Ministry of National Defence (MApN) for 2018 was built in terms of investments (capital expenditures), on commitment appropriations of RON 10.5 billion and on budget credits amounted to RON 6.5 billion.

Commitment appropriations represent a maximum limit up to which the ministry can borrow money for investments. Once committed in the form of contracts, commitment appropriations are converted into budget appropriations. Therefore, from the Defence budget, it appears that the ministry committed to making acquisitions amounted to at least RON 6.5 billion and no more than RON 10.5 billion, respectively.

The implementation of the defence budget in the first ten months of this year shows that RON 5.1 billion was spent on investments.

The Government also registered the increase from the Defence budget in the investment statistics – and obtained a total figure widely circulated in public space.

By putting that in relation with the data centralized at the level of the Ministry of Finance, we see that much of the state’s investments made this year represents exclusively by army’s endowment, as the Government committed to allocating at least 2% of GDP to this ministry’s budget, percentage agreed with NATO partners.

In the first nine months of the year, investments made exclusively from public money were RON 11.3 billion, by RON 1.7 billion more compared to the end of August. If we assume that the investment growth rate was similar in October, it means that, after the first ten months of the year, they would be about RON 13 billion.

On the one hand, Army’s investments account for 45% of total public investment between January-October.

Note: The calculation may change based on October’s definitive data, which the Ministry of Finance should release on November 25th. Investment increase could be somewhat more significant, as governments prefer to unblock these expenditures in the last two or three months of the year when they have a better assessment of the evolution in public finances and budget’s performance within the deficit target. Even so, the proportion of the Army’s investment will continue to be decisive in the total investment costs.

Investments beyond Army – less than half of promises. Litmus: transport infrastructure

In the first semester of this year, public investments made exclusively from public money (capital expenditures) amounted to about seven billion lei or 33.4% of the corresponding program for the first six months of 2018. In other words, only one-third of the investment money planned for the first half of the year was spent from the consolidated general budget.

The Ministry of Finance’s data shows that local governments have invested about RON 3.2 billion (32.7% of the budget planned for this period), CNAIR (National Company of Road Infrastructure Administration) has spent only a quarter of the budgeted amount in the first semester (about RON 0.6 billion), state-owned and autonomous companies, partially or fully financed from public funds RON 0.3 billion (28.4% of budgeted expenditures).

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