Fiscal Council warns Romania heading for 7%-of-GDP fiscal deficit in 2022

By bne IntelliNews November 1, 2019

Romania will not be able to close the state budget with a deficit under 3% of GDP this year, and maintaining the pension growth calendar with no further corrective measures will lead to a deficit of 4% of GDP next year, 5.7% in 2021 and 7% in 2022, said Daniel Daianu, the president of the Fiscal Council, an independent public body charged with monitoring and endorsing the fiscal policy under fiscal responsibility law.

Romania’s fiscal policy is for the time being in limbo, as the new government expected to take office this month has avoided including among its plans any politically undesirable measure such as reconsidering the wage and pension hikes planned for next year. Among the steps already approved by the outgoing Social Democratic Party is a 40% pension hike next September.

Such a fiscal slippage would cause the European Commission to trigger the excessive deficit procedure for Romania while rating agencies would downgrade the country’s sovereign rating, Daianu warned.

Daianu added that “this is a moderately optimistic scenario that does not include a recession episode”.

Although the Fiscal Council president believes that Romania is not yet on the verge of collapse, he suggested correction on the expenditures side because expecting revenues to increase by 3% of GDP would be unrealistic. With no corrections, Romania will end by spending it entire budget for pensions and wages in the public sector in 2022, Daianu warned.

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