RSS
European Commission repeatedly warns about exceeding deficit target. Adjustments needed
In February 2018, the European Commission estimated that the progress of Romania’s economy would slow down to 4.5% in 2018 and 4% in 2019. “Romania’s GDP grew in 2017 to an estimated level of 6.7%, a post crisis record. The main engine of the increase was private consumption supported by indirect tax cuts and salary increases, both in public and private sectors. After contraction in 2016, overall investments started growing again in 2017. The recovery rate is still slow, since public investments dropped significantly for the second year in a row. The boom recorded by private consumption led to a an increase of imports. Consequently, exports acted as a brake on real GDP increase, despite the relatively solid growth of exports,” the European Commission considered. Private consumption will continue to act as the main growth engine in 2018 and 2019 and investments will get stronger, backed by the implementation of projects financed by European funds, EC considered.
EC warned Romania, in the spring economic provisions, that budget deficit would reach 3.4% of GDP in May 2018, and 3.8% in 2019. In Romania’s case, the Commission recommended the adoption of measures in 2018 and 2019 to correct the significant drawback. At the same time EC recommended Romania to correct significant stray direction from adjustment toward the Medium Term Objective, to apply the fiscal frame and improve voluntary payment and tax collecting. At the same time, Brussels recommendations have in view the adoption of measures necessary to ensure that the nominal increase rate of government expenses should not exceed 3.3% in 2018, which corresponds to an annual structural adjustment of 0.8% of GDP.
“Spring prognoses of the Commission foresee a general government deficit of 3.4% of GDP in 2018 and 3.8% in 2019, over the 3% threshold foreseen by the Treaty. Significant additional measures will be needed in 2018 in order to observe the provisions of the Stability and Growth Pact, considering the deterioration of fiscal prospects,” Commission recommendations show.
In November, the European Commission significantly reviewed estimates referring to Romania’s economic growth in 2018 from 4.5% to 3.6%, while in 2019 it counts on an advance of 3.6% against 3.9% estimated in spring. For 2020, EC indicates an advance of 3.6%.
Government deficit is prognosticated to grow to 3.3% of GDP in 2018, from 2.9% in 2017, and will continue to reach 3.4% of GDP in 2019 and 4.7% in 2020. “These prognoses are mainly influenced by plans of significant increase if the pension point, included in the ruling program and the implementation of the pension law recently adopted by the government,”EC says.
As a result of these politics, Romania’s structural deficit is foreseen to grow from 3.5% of GDP in 2017 to 4.5% in 2020, while the debt-GDP ratio will grow from 35.1% of GDP in 2017 to 38.2% in 2020.
The European Commission points to the fact that Romania’s public deficit grew from 0.5% of GDP in 2015 to 2.9% in 2016 and is foreseen to reach 3.3% in 2019, to 3.4% in 2019 and 4.7% in 2020, the highest deficit in EU.