RO Fiscal Council: credible fiscal consolidation plan is mandatory for deficit financing

Romania needs to announce a credible fiscal consolidation plan if it wants to anchor the investors' expectations for a sustainable trajectory of the fiscal and budgetary policy, the Fiscal Council concluded in its opinion on the second budget revision announced by the Executive.

Even assuming that the European Commission will postpone returning to the 3%-of-GDP budget deficit constraints in 2021, the public financing remains a "strong constraint" for Romania's fiscal and budgetary policies, the FC says.

The Council estimates a budget deficit of 8.6-9.4% of GDP this year under the scenario of 4-6% GDP contraction, and a minimum public deficit of 7.5% of GDP in 2021 (assuming that the state forecasting body's projection for 4.9% GDP expansion is fulfilled).

Speaking of the second budget revision on the expenditures side (where active policies can be pursued), the FC finds both permanent increases in the discretionary expenditures (pensions, in particular) and higher one-off expenses (sanitary, social).

Overall, the revision has added 0.6-0.8% of GDP to the public deficit.

The budget revision's key issue, the 14% rise in the public pensions, should have been included in a medium-term fiscal strategy, the FC says. Further hikes (adding up to the 40% rise included in the Pension Law) should be based on clear rules to anchor the expectations and improve the fiscal sustainability and the budgetary planning.

The FC also recommends increasing budget revenues. The Council says that this is not impossible, but "needs political will and dismantling resilient networks in society."

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