The European Commission’s winter forecast shows that Romania will miss its budget deficit target this year, said Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, Taxation and Customs.

He expects the Government in Bucharest to make credible announcements related to the measures it will take to make sure that the budget deficit doesn’t go above 3% of the GDP, the limit set by the European Fiscal Stability Treaty.

The European Commission’s winter forecast shows that Romania’s budget deficit may reach 3.6% of the GDP this year and further widen to 3.9% of the GDP in 2018, due to tax cuts and salary and pension increases.

“Fiscal policy turned pro-cyclical in 2016 and the general government deficit is expected to widen. The authorities have enacted a series of tax cuts, including to VAT rates, excise duties and an abolition of the special construction tax. On the expenditure side, public wages have been significantly increased over 2016-2017. The new government also enacted a significant additional increase of old-age pensions which will enter into force in July 2017. As a consequence, the structural deficit widened from under 1% in 2015 to around 2.5% of GDP in 2016 and is forecast to reach around 4% in 2017. The general government deficit is estimated to have increased from 0.8% of GDP in 2015 to 2.8% of GDP in 2016 and is expected to widen further to 3.6 % in 2017,” reads the European Commission’s report.

The targets set by the European Fiscal Stability Treaty include maintaining a budget deficit of under 3% of the GDP, a public debt of under 60% of the GDP, and a structural deficit of under 1% of the GDP. Most EU states, including Romania, adhered to these rules.

The Government led by Sorin Grindeanu has said that the budget deficit would stay under 3% of the GDP this year, but many economists have voiced concerns over the recently adopted state budget for 2017, which provides significant increases both in terms of revenues and expenses compared to 2016.

Romania's Government approves budget project for 2017

editor@romania-insider.com

(Photo source: EC - Audiovisual Service / Photo by: Mauro Bottaro)