The macroeconomic scenario underlying the budget planning for 2019 is overly optimistic, given the expected economic slowdown in the euro area and the imminent end of the expansionary stage of the global economic cycle, Romania’s Fiscal Council said on Tuesday, February 5, in an opinion sent to the Government on the 2019 budget draft.

Moreover, the sudden adoption of fiscal measures through the emergency ordinance 114/2018, with a negative impact on the economy, is likely to add to external risks.

Against this background, maintaining the assumption of accelerating real economic growth at 5.5% in 2019 appears surprising and unjustified, the report concluded.

The labor market dynamics, the sharp improvement in the VAT collection rate and the subdued increase of some public expenditures, particularly the public debt service, are examples that illustrate the Government’s deviation from prudential principles inked in the Budgetary and Fiscal Responsibility Law (LRFB), the Fiscal Council warned.

The employment in the private sector is expected to rise by 3.7% while the gross wages would expand by 13.8%, under the Government’s assumptions. The scarce workforce makes unlikely such a rise in employment while the private sector can hardly accommodate such further wage increases.

Separately, the Government assumes a 17% rise in the VAT revenues, well above the 8% expected growth in private consumption, the Fiscal Council warned. Finally, the Government expects the public debt service to rise by only 4% in 2019 after the 28% advance in 2018, which is highly unlikely given the current circumstances on the banking market.

editor@romania-insider.com

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