Hundreds of construction sites in Romania were opened on public funds: in the years to come these projects will require some 70 billion lei financing. Hence, the Government came of with the idea of rating the importance of public investments, so that the state resources could be shared between economically and socially significant projects, instead of being squandered on small works often serving the electoral interests of mayors and other local officials. At the request of International Monetary Fund and the World Bank, Liviu Voinea launched the prioritizing process, based on a series of criteria and a points system. “We have to finish some projects, it’s unconceivable to have a development rate of 30%-50% on all the projects and a 0 completion rate. Our aim is to raise this rate at 10%-20% and obtain other financing sources for the remainder”, Liviu Voinea was saying half an year ago, when he introduced the first 20 objectives and methodological norms for the enforcement of the differentiating criteria.
What hinders the reform?
“If we manage to carry out this project, we will assist at a sheer revolution in finance”, Voinea said back then. According to the new rules, the priorities list had to be made up by each main budget administrator and then sent to the Investment Evaluation Unit in the Ministry of Finance for centralization and verification purposes. On the 30th of June, the final list would be analyzed by the Government and eventually approved through a Memorandum. Furthermore, the state budget revision would take this list into account and would provide the amounts necessary for continuing the projects. It’s just that the initial schedule was not followed after all.
While the former minister was sending the methodological norms, sometime this spring, the Government was issuing the Emergency Ordinance 8/2014, giving the Development Ministry the upper hand in alloting the investment money to local authorities through ministerials orders, which are no longer published in the official gazette. Shortly afterwards, the IMF agreement was suspended, along with the obligations assumed by the Romanian Government, while Liviu Voinea was being appointed vice-governor of the National Bank by the Parliament.
“Released from the pressure exerted by the international lending bodies, political will was no longer enough to carry on with the prioritizing process”, Ionut Dumitru, president, the Fiscal Council, comments. We tried to obtain a statement from former minister Liviu Voinea, but our efforts were in vain. In turn, Cristian Socol, adviser to the prime minister, said he had no clue about this subject.
The 2014 state budget includes 104 main public investment objectives to be completed during the next twelve years – a timespan three, maybe four times longer than the initial estimates.
The public investment freeze
“One of the problems we identified is the excessive portofolio of public investment projects in progress, some with a poor social and economic impact, some clashing with the current national strategic priorities. Moreover, some of these projects have been frozen for a long while, due to the minimum budgetary allocation, enough just to cover some basic contractual obligations, thus overburdening the fiscal space that could have been used more wisely for financing prioritary development projects and co-financing investments projects sponsored from European funds” – the substantiation note for the methodological norms remarks.
The events which followed the unveiling of the “public finance reform” plan and the publication of methodological norms proved the sponsors’ intentions weren’t too serious. The memorandum that should have been signed by the Government was never published, while the summer budget revisal didn’t include any list of objectives, as previously established. The first six months of the year saw a 30% decline in public investments.
“By the end of July, the capital expenditure accounted for only 69,3% of the semestrial schedule, 2.3 billion lei short of this schedule and 2.34 billion lei short of last year’s schedule”, a report released by Fiscal Council reveals.
Hope lies in the next buget
The same report notices the Government cut off another 1,15 billion lei from the capital expenditure, during the budget revision. According to economical experts, the fiscal-budgetary policy decisions taken in the first half of the year hindered investments and had a major part in this new recession episode. Also, the deficit remained very low compared to the proposed yearly target, of 2.2% of GDP.
Prime minister Victor Ponta announced public investments amounting 10 billion lei until the end of the year. Subsequently deputy prime minister Liviu Dragnea emphasized that a large share of this amount will cover arrears and salary expenses.
The 20 prioritary objectives announced for 2014 count nine motorways, among which Nadlac-Arad, Lugoj-Deva and Sebes-Turda. The total amount proposed initially for the nine projects was 2.5 billion lei, accounting for 20% of total investment funds.
The priorities’ list and the allocations were a first attempt to set public finances in order. Before this intention, for now just taking shape, there was no record of the projects funded from public finances. Because of this disarray, countless works set up only for electoral purposes have been abandoned. In the meantime, strategic projects only receive petty cash and thus fail to meet the announced deadlines. The reform in public finance will be tested next year, along with the unveiling of the budget schedule for the next 12 months.
Project evaluation criteria
– Project opportunity, taking into account sectorial strategies
– Economic and social impact
– Affordability and financial sustainability
– Implementation performance
We need to Rating the importance of public investments because, at this point, 25% of all projects use 90% of all available funds and require a further 70 billion lei for the years to come. Our aim is to impose a more efficient public spending system and to carry out these projects”
Liviu Voinea, former Buddget Minister
