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Fiscal Council estimates Romania's 2024 budget deficit at over 6 pct of GDP
According to Fiscal Council estimates, Romania's budget deficit this year will be in excess of 6 percent, with slim chances to fall below this limit if capital spending is slashed, Council chairman Daniel Daianu said on Tuesday.
"And the big test, the litmus test so to say, of consolidation will be next year. (...) We don't have a target, because we don't set ourselves a target, we have an assessment. Our estimate is at over 6 percent of GDP, because this year will also see the highly severe impact of the start of the implementation of the new pension reform. Let us not forget that in 2025 this will be around 1.6 percent of GDP," Daianu told the Profit.ro event on "Investments vs. Deficit: Challenges and Risks in the Economy under the Impact of Growing Public Debt and Deficits."
"Not long ago I wrote a text whereby I wanted to clarify what I considered to be shrouded in confusion in certain minds, even of certain economists. This assumption, which for professionals is surprising, to put it elegantly, that surmises that if you have big investments, big public investments, it doesn't matter..., forgive me, but this is - I don't want to be harsh - but it's nonsense. Because if we look at the history of the last years, and see the share of European funds as a source of financing for public investments, we notice for example that last year it was around 60 percent. So, with a basic calculation, if you remove the European funds that are seen on both sides of the budget, both at revenues and expenditures, what are you left with? You are left with the same budget deficit. In other words, you have a budget deficit that essentially results from where? From the difference between the - we say permanent revenues and expenses - they can change, but we call them permanent because you cannot toy around with a tax regime. There is a certain need for predictability and there are market expenses that you cannot cut as you wish," explained Daniel Daianu.
The Fiscal Council chairman expressed his surprise at the fact that when the fiscal consolidation horizon was established, the highly severe impact of the pension and wage system reforms was not reported.
"We are stuck with this reality that our deficit seems to be frozen at 6 percent of GDP. (...) It's a very large deficit, it cannot be justified by the level of public investments... and we can also finance it through the efforts of the Finance Ministry to obtain financing from the domestic market as well. You see these securities that are intended for the population. The population is confident, the pension funds have confidence, so they sell well. Why do they buy them, you would say, if the public budget issue is so acute? Where does this trust come from? There is trust because up until now Romania also has some assets, it has a relatively small public debt. It is subject to the excessive deficit procedure. Other countries too will enter the excessive deficit or very high public debt procedure, so this is no longer something new. But it is subject to this procedure, the markets are waiting for a correction and you cannot wait forever for this adjustment. You must carry it out," said Daniel Daianu.