Fiscal Council projects Romania’s public debt around 55% of GDP at end-2021

Romania's Fiscal Council expects the country's public debt to rise to 54.3% of GDP at the end of 2021 under the baseline scenario. In an optimistic scenario, the public debt should reach 51.9% of GDP and, in a pessimistic one, 56.7% of GDP.

At the end of 2019, Romania's public debt was 35.2% of GDP, meaning the ratio would expand by some 20pp over only two years.

Public debt to GDP ratios rising above thresholds of 45% of GDP, 50% of GDP and 55% of GDP will trigger specific stabilizers provisioned in the fiscal responsibility law, the Fiscal Council stressed. For the first threshold, however, the measures are only preventive and passive, though: a report should be compiled by the Government to justify the situation, including remedial measures. The other two thresholds, however, trigger more active measures such as freezing the payroll in the public sector (at 50% of GDP) and freezing the social security expenditures (at 55% of GDP).

The Fiscal Council baseline scenario relies on the European Commission's Spring Forecast, which envisages a 6% GDP decline and 9.25% budget deficit for Romania this year, and the interest rates scenario assumed by the Government as part of the budget planning revised in April. The optimistic and very optimistic scenarios include 2pp stronger GDP growth and (optimistic) and 2pp stronger growth plus 1pp lower cost of borrowing (very optimistic). The pessimistic and very pessimistic scenarios were considered similarly around the baseline scenario.

Notably, all the options (and the European Commission's Spring Forecast) assume a 40% pension hike in September - a hypothesis that is increasingly less likely judging from the Government officials.

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