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EC estimates a deficit of over 6.5% of GDP in 2024
The European Commission has estimates for 2024 which lead to Romania’s deficit to over 6.5% of GDP while the Fiscal Council considers that this will be around 6.4% of GDP if there is not a new drastic cut of the capital expenses, shows the Report for the analysis of convergence ‘ Romania – the Euro Zone Monitor’ no.15/2024 – ‘ Europe and the loss of the peace dividend’.
‘In this context, with many risks and dangers, the difficulties are to be understood that Romania faces during budgetary consolidation, which should be achieved over the next years. Similar to the other states in the EU, the IPC inflation goes down and it is likely it could be around 5% at the end of the year. Unfortunately, the budgetary deficit seems stuck at 6% of GDP (in European methodology). In 023, there was no progress against 2022, and this year is an electoral one; pressures are growing on the public budget. Given the budgetary execution, the EC has estimates for 2024 which lead to over 6.5% of GDP. The Fiscal Council has estimated the deficit to be around 6.4% of GDP in 04, if there is no other drastic cut of the capital expenses, although the official programming is 5% of GDP. It is hard to imagine a drop of the deficit in the years to come without supplementary fiscal income. In 025, the complete impact of the pensions reform will be felt, which means almost 1.6% of GDP. It is a major vulnerability of the economy, which is partially limited by the level, still reasonable of the public debt ( under 50% of GDP), high European resources through the Multiannual Financial Framework (CFM) and the PNRR’ , says Daniel Daianu, the coordinator of the project team.
According ot him, the foreign currency reserves of BNR illustrate the massive flow in of European money. Daniel Daianu mentions that in 2023 there was a reduction of the current account deficit, which was at 7% of GDP, against over 9% in 2022, due, mainly to the improvement of the exchange rate.
"Fiscal consolidation is also hampered by confusion in the public debate. Some argue that as long as public investment is close to the budget deficit, public finances are not at risk. This is a false thesis, which ignores the fact that much of public investment is European money. And European money does not finance the budget deficit - it is seen on both sides of the public budget. The budget deficit is financed from the internal and external market. Nor is the current account deficit covered by European money; it is financed by foreign direct investment and borrowing. But European money can limit the current account deficit, as remittances do. European money is a great benefit of EU membership, just as NATO is a security belt for Romania. European money supports necessary reforms, contributes to the development of basic infrastructure, supports education and public health, supports the balance of payments, etc. These resources help Romania to avoid a deterioration of its sovereign risk", says Daniel Daianu.
According to the source, Romania is in the EDP and the government, according to the new EU economic (fiscal) governance framework, is required to submit a clear fiscal consolidation programme, also in terms of time horizon, which would have net expenditure control as an operational tool.
‘This programme must take into consideration the impact of the reforms of the pensions system and that of salary system, which increase the rigid expenses of the budget and complicate the process of fiscal consolidation. The Union has been thinking for some time about an industrial strategy which could help it in the global competition, in keeping up with the US and China in leading areas, including the use of AI. Now, this strategy must take into consideration the implications of the Ukraine war and other military conflicts. As it is about not only about economic competition, but about peace and democracy. This are the high stakes of the years to come, even we can neglect the need to combat negative effects of the the climate changes, pandemics, effects of natural hazards. And an escalation of the military conflicts must be avoided which could lead to a nuclear catastrophe. Nuclear weapons must be subject to international control arrangements. These are very difficult and dangerous times for Europe’, the report says.