Expert Popa: We are facing a critical stage of convergence process; we must manage public debts prudently

 Romania risks entering a period of economic stagnation and loss of competitiveness if we follow an unsustainable economic model, characterized by growth based predominantly on consumption and indebtedness, without investments in technology, reforms and innovation, argues Cristian Popa, member of the Board of Directors of the National Bank of Romania (BNR), in an opinion article sent on Wednesday.He emphasised that the opinion presented in the article belongs to him and does not represent the official position of the National Bank of Romania."We are at a critical stage of the convergence process. If we follow an unsustainable economic model, characterized by growth based predominantly on consumption and indebtedness, without investments in technology, reforms and innovation, we risk entering a period of economic stagnation and loss of competitiveness. So far, our country has benefited from a relatively low level of public debt compared to GDP, but the dynamics of the debt level require increased attention. The increase in debt must be managed with caution, in order to avoid the accumulation of vulnerabilities similar to those in Southern Europe. Thus, fiscal consolidation is urgently needed. From 25% to 75% of the EU average, progress has been driven by structural reforms, capital and the efficient use of existing resources. However, to take the next step, Romania must accelerate the pace of innovation, liberalize the economy and support capital accumulation," believes Cristian Popa.In his opinion, the main objective must be to increase labour productivity through technology, automation and innovation. Unfortunately, our country is constantly at the bottom of the rankings regarding research and development, the BNR official claims."In addition, the private sector needs an ecosystem in which initiative is encouraged, not hindered by bureaucracy, taxes and unpredictable regulations. Success must be supported, not discouraged by taxation. Reducing administrative barriers, a stable fiscal framework and healthy economic competition are essential for attracting investment and stimulating innovation," stated Cristian Popa.The BNR official stressed that, in the last two decades, Romania has traveled an impressive path in terms of economic convergence with the European Union: from 26% of the EU average in 2000 (GDP per capita, adjusted to purchasing power parity), to 80% in 2023, according to Eurostat data."In practice, during this period, Romania has reduced the gap with the European average by approximately two percentage points per year. This rise was based on access to the single market, the influx of foreign direct investment (FDI), the improvement of the institutional framework and the capitalization of a well-trained, but previously inefficiently used, workforce. However, as we approach the European average, the pace of convergence slows down. Like the disinflation process, the last part of the road is the most complicated. The model based on cheap labour is reaching its limits: from now on, economic growth must come from productivity, not from the advantage of low costs," stated Cristian Popa.According to him, the experience of countries in Southern Europe (Greece, Spain and Italy) perfectly illustrates this danger."In the early 2000s, these economies were close to the EU average. Greece had reached 98% of the EU average in 2004, Spain even exceeded it for a short period, and Italy was at 120% of the European average. However, in the following years, these states experienced economic stagnation/decline, entering an impasse they have not been able to overcome even today. These countries relied on an unsustainable economic model: increasing consumption through debt. Greece became dependent on external financing, without implementing sustainable structural reforms, which led to a deep economic crisis. Spain went through a real estate bubble that, once it exploded, caused recession and high unemployment. Italy, in turn, registered a gradual economic decline," argues Cristian Popa.