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Romania's 2020 budget gap could reach 4.8%/GDP in absence of corrections - Fiscal Council

Romania's 2020 budget gap could reach 4.8%/GDP in absence of corrections - Fiscal Council Romania GDP, budget

BUCHAREST (Romania), January 23 (SeeNews) - Romania's consolidated budget deficit could increase to up to 4.8% of the projected gross domestic product (GDP) in 2020 if the government does not make necessary adjustments, the country's Fiscal Council (CF) said on Thursday.

"Considering the information available at this point in time, we estimate the 2020 budget deficit within a range of 4.6% - 4.8% of GDP, resulting in a deviation from the finance ministry's target by 1 - 1.2 pp. This very complicated situation calls for further measures of consolidation," the Fiscal Council said in an analysis of the budget published on its website.

The Fiscal Council is a government body created in June 2010 which has the role of advising authorities in order to ensure a healthy budget.

According to the council's assessment, although the 2020 budget bill is aimed at reducing budgetary slippage, tax cuts operated shortly after the adoption of the budget law as well as additional weaknesses of budget execution in 2019 have led to a likely deepening of the budget imbalance in 2020.

Also, the impact of a planned 40% increase of the pension-point value starting September 1, as well as of other measures making part of the new pension law will be fully observable in 2021, when the council expects budget deficit to exceed 6% of GDP. The deterioration will continue in 2022, when a budget gap of over 7% of GDP is forecast.

"Under these conditions, a correction to levels close to the 3%-of-GDP threshold envisaged by authorities in the medium-term fiscal-budgetary framework becomes extremely ambitious, problematic, and at the same time, absolutely necessary; it is hard to imagine that financial markets would tolerate budget deficits of such magnitude," the Fiscal Council noted.

In the opinion of the analysts of the council, the later the budget correction will be made, the more risks of unfavourable economic and fiscal performance will increase.

Romania's 2020 budget is based on projections for economic growth of 4.1% and cash deficit equivalent to 3.59% of gross domestic product (GDP), above the EU’s 3% threshold. According to the Maastricht Treaty signed in 1992, the ratio of the annual general government deficit relative to GDP at market prices must not exceed 3% at the end of the preceding fiscal year.

Romania's consolidated budget was in deficit equivalent to 3.56% of the projected 2019 in the eleven months through November 2019, compared to a gap of 2.7% of GDP in the like period a year earlier, according to the latest data available from the finance ministry. 

(1 euro = 4.7790 lei)