Romania’s Fiscal Council, in its opinion on the state and social security budget laws, estimates that the consolidated budget deficit might significantly exceed the 3.6%-of-GDP target this year.

The Council sees the public deficit reaching 4.6%-4.8% of GDP if the pensions are hiked by 40% in September as provisioned under the Pension Law in force at this moment. The negative impact will be limited if corrective measures are taken in due time while delaying such corrective measures could put at risk Romania’s sovereign rating, the Fiscal Council concluded.

The public deficit having exceeded 4% of GDP last year (FC’s estimates point to a gap of over 4.8%-4.9% of GDP versus the official figure of 4.4%-4.5% advanced by the authorities) will determine the European Commission to trigger the excessive deficit procedure against Romania, the Council stated.

The Government’s estimates for last year’s revenues and expenditures are on the optimistic side and the FC believes that the combined effect of higher expenditures and lower revenues would amount to 0.45% of GDP.

The correction is relevant for this year’s budget planning as well, plus supplementary bills with an impact on the budget of around 0.5% of GDP were enacted after the budget law was adopted, the FC says - with the two elements (the 0.45%-of-GDP correction and the 0.5%-of-GDP impact of new laws) explaining most of the 1%-1.2% deviation from the official 3.6%-of-GDP target for this year’s public deficit.

The pension hike will produce even stronger impact in 2021, when the Fiscal Council projects the budget deficit to reach 6% of GDP - “a level that is very difficult to imagine as being accepted by the markets and indicate the need for timely correction.” Therefore the urgent need for corrective measures, the FC concluded.

editor@romania-insider.com

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