Romania's Fiscal Council urges Govt. to draft fiscal consolidation plan

The public deficit will reach 6.4% of GDP this year compared to the 5.0%-of-GDP target, according to the Fiscal Council, which also states that the government remains under the Excessive Deficit Procedure (EDP) and, therefore, should draft a fiscal consolidation plan to accommodate the expected rise in the public pension expenditure.

The Fiscal Council rejected the government's claim that the public deficit would be sustainable if matched or caused by investments.

Most of the investments are financed by inflows from the European Union, and both the inflows (EU funds) and the outflows (investments) are temporary, while the deficit is financed from public borrowing. Similarly, the transfers from the EU budget do not finance the current account (CA) gap but can contain it – while the CA gap is funded from external borrowing and FDI, the Fiscal Council argues.

"According to the new economic (fiscal) governance framework in the EU, the government is required to send a clear plan (including deadlines) of fiscal consolidation, which would have as an operational instrument the control of net expenses. This program must take into account the impact of the pension and salary system reforms, which increase rigid budget expenditures and complicate the fiscal consolidation process," according to a report of the Fiscal Council quoted by Bursa.ro.

Pension increases and wage hikes will weigh on the budget for several years, according to the latest rating update published by S&P. The rating agency expects average deficits of more than 5% of GDP between 2025 and 2027 unless supplementary fiscal corrective packages are implemented.

These projections already encompass consolidation measures equivalent to about 1.3% of GDP from 2024, including raising additional tax revenue from closing tax exemptions, adjusting specific tax rates, and improving tax collection.

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