EC approaches Romania on excessive deficit mitigation

The European Commission (EC) has sent a letter proposing to the Romanian Government to cooperate on the 2021 budget planning, in the context of the ongoing excessive deficit procedure, temporarily suspended due to the pandemic.

The letter sent to finance minister Alexandru Nazare on December 29, presented by Hotnews.ro, highlights the risks generated by the forecasts based on a no-policy change assumption.

Under a no-policy-change scenario, the Commission estimates Romania's public debt will exceed 60% in 2022 and go beyond 100% of GDP in 2027, remaining above that level until the end of the projection period (2031).

Based on the Commission's assessment, overall risks to debt sustainability appear high over the medium term.

This risk level indicates significant fiscal vulnerabilities that the Romanian Government needs to address with appropriate policy measures.

The Commission will reassess Romania's budgetary situation in spring 2021.

In November last year, the EC concluded that Romania is unlikely to make the adjustments that would be necessary to ensure that the excessive deficit identified in the April Recommendation is corrected in the foreseeable future.

Even if they manage to reverse the 40% pension hike and the doubling of child allowances, the Romanian authorities will still need to consider substantial structural actions on both the revenue and expenditure sides to set the deficit on a declining path and prevent a steep increase in the debt-to-GDP ratio, the EC said then.

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