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Ionut Dumitru, president of Fiscal Council, about budget execution: increasing risk of entering recession

Ionut Dumitru, the president of the Fiscal Council declared that we are getting close to a threshold in which the increase of public debt makes us vulnerable while increasing the risk of recession. That is why we should use this period of economic boom to keep public debt under control.

Dumitru also says budget expenses seem underestimated. “Budget projection seems underestimated for expenses, which grow quicker than they should, according to budget projection. We refer to increases of salaries, pensions, etc. On the other hand, expenses with investments drop significantly compared to last year, including European funds. Last year, the absorption of EU funds was low, but this year they seem to be even lower, “Ionut Dumitru said.

The president of the Fiscal Council warns that risks can be big if we do not make corrections and executions continues like in the first months.

We risk having a budget deficit over 3%.

“This aspect was also pointed out by the European Commission and IMF. The Fiscal Council considered overestimates of two billions for incomes and four billions for expenses, the deficit reaching 3.6% of GDP. If corrections for budget execution are not made, there is the risk of exceeding a 3.6% deficit. Pressure is high on expenses. It is counter productive for government members to speak about major salary increases, when we have had important salary increases in the budget sector. We are trapped without being able to get out and costs we have to pay in the years to come are very high,” Dumitru says.

On the other hand, public debt is high for our development level.

“At 40%, as BNR analyses show, the recession probability grows close to 50%. We are getting closer to a threshold where the increase of public debt makes us vulnerable and massively increases the recession risk. That is why we should use this boom period at least for keeping public debt under control, which means small deficits. But even in government projections, which are very optimistic, public debt continues to grow in economic boom,” the president of the Fiscal Council shows.

According to data released on Monday by the Finance Ministry, the execution of the general, consolidated budget in the first two months of 2017 ended with excess of 397.1 million lei, that is 0.05% of GDP, compared to 788.1 million lei, 0.10% of GDP recorded in the same period of 2016.

Incomes of the general consolidated budget of 34.9 billion lei, representing 4.3% of GDP, were 1.4% smaller than in the same period of 2016.