EC warns that Romania’s budget deficit could hit 6.1% next year

The European Commission will recommend next week that the EU Council opens the excessive deficit procedure against Romania, EC executive vice president Valdis Dombrovskis said on Wednesday, February 26.

“In Romania, the deficit was above 3% of GDP in 2019 and is expected to stay above 3% both this year and next. This reflects the longstanding build-up of fiscal imbalances as a result of pro-cyclical strongly expansionary fiscal policy since 2016. That's why we adopted a Report on 14 February, concluding that the opening of an Excessive Deficit Procedure is warranted,” Dombrovskis stated.

In the absence of lasting reform efforts, growing fiscal and current account deficits are putting the sustainability of Romania’s economic growth at risk, according to the European Semester Report on Romania’s economy published by the EC on Wednesday.

The headline deficit is projected to have risen from 2.9% in 2018 to 3.6% of GDP in 2019, mostly driven by public wage expenditure.

The headline deficit is set to continue widening, to 4.4% of GDP in 2020 and 6.1% of GDP in 2021, due to significant increases in old age pensions enacted in summer 2019.

The structural deficit is also projected to rise close to 6% of the potential GDP in 2021.

Separately (but in close connection to the wide public deficit and subsequent demand stimulus), Romania’s current account deficit is the main challenge outlined by the Commission, as it continued to widen while its financing raises concerns. Following a sharp increase in 2018 to 4.4% of GDP, the current account deficit is estimated to have further widened to 5.1% of GDP in 2019.

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