RO Govt. drafts 2022-2024 budget-fiscal strategy

Romania's Executive wants to bring the general government budget deficit under cash and ESA definitions down to 2.9% of GDP in 2024, according to the 2022-2024 Budget-Fiscal Strategy published on December 19.

The fiscal consolidation, in line with the Excessive Deficit Procedure that the country is subject to, will result in keeping the public debt-to-GDP ratio under 50% during most of the forecast period (49.9% in 2024).

Robust GDP growth of 4.6% in 2022, 5.3% in 2023 and 5.0% in 2024 will contribute to this due to the denominator effect (effect of nominal GDP).

But serious efforts on rationalising the expenditures and increasing the revenues are still needed. Compared to 2019 - before the crisis - the revenues-to-GDP ratio is supposed to rise by 3.7pp to 34% in 2024. The digitalisation of tax collection and the ample potential provided by the wide VAT gap pinpoint the planned improvement.

In turn, the expenditures will reach, in 2024, 36.9% of GDP in 2024 - 2.0pp more compared to 2019. The public payroll envelope should be kept under control such as to bring the payroll-to-GDP ratio down to 7.7% in 2024, down from 9.7% in 2019 (and 9.4% in 2021).

Besides a bigger revenues-to-GDP ratio, this should create fiscal space for public investments to double in 2024 compared to 2019, up to 7.7% of GDP - in line with the public payroll budget.

As regards the public pensions policy, the Strategy provides for gradual implementation of Law 127/2019 - the "40% pension hike law" that scared investors in 2019.

But the calendar of implementation will be set in line with the Resilience Plan provisions, the Strategy also says.

Under PNRR, Romania agrees to design a new pension law and keep the public pension budget under 9.4% of GDP - both provisions fiercely criticised by the Social Democrats.

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