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PM Orban: Budget deficit worrisome, requires utmost caution with all spending increase

Prime Minister Ludovic Orban said on Wednesday that the budget deficit is worrisome and all spending increase must be handled with caution. "The budget deficit should not be compared to the deficit of other years. Not only Romania, but the entire world is faced with a pandemic that has generated a severe economic crisis. This economic crisis has led to the closure of a lot of activities and has diminished the Romanian state's revenues from taxes, fees and other dues. The deficit is largely the result of this economic crisis caused by the epidemic. I believe that all the measures we have taken will generate favorable effects in the medium and long term, the fact that we left liquidity in the market for companies and citizens by postponing bank installments for a period of nine months, by speeding up VAT refunds, suspending seizures and foreclosures, by offering tax and duty forbearance - all these measures have been taken to ensure liquidity, to have financial resources in place to keep the market moving. This is a worrisome deficit we must take into account and which requires us to be extremely cautious about any increase in spending," Premier Orban said after attending an event dedicated to the National Anthem Day.

He also pointed out that the government cannot decide on the pensions' raising rate before a mid-year report on the budgetary and financial situation is readied, and the forecasts of the National Strategy and Forecast Commission and other similar data from international bodies are available.

"I haven't seen yet any country raise pensions and wages during this serious health crisis that has triggered an economic crisis, but we are under pressure and we will increase pensions and (child) allowances, yet by an amount that is really affordable for the Romanian economy," Orban said.

On the other hand, Finance Minister Florin Citu said on Tuesday evening at the private broadcaster B1 TV that the budget deficit in the first six months of this year is reasonable in the economic context we are going through and if we also look at what is happening in the rest of Europe.

"Half of the deficit, which is about 23 billion lei, represents the fiscal measures we have taken (...). These amounts are money that has remained with companies, so the economy goes on, through those fiscal measures we have taken. COVID-19 expenses are 5 billion RON, directly related to COVID-19. At the same time, the deficit is slightly higher because we have not yet received the amounts from the European Commission, on the settlement of certain expenses. It's about a billion and a half RON. It would reduce the deficit a little more. But it's a deficit, I say, if we look at the economic context we're going through, a reasonable deficit. If we look at what is happening in the rest of Europe, where deficits are close to 10 pct, it is a reasonable deficit. And we've been able to keep a measure of the situation, because we're not a rich country after all. Romania is a country that has a certain rating, we have a difficult economic situation, we have entered with a deficit in this crisis and then we had to be very cautious and very careful how we spend the money," the minister said.

On the other hand, he admitted that it is a large deficit and, therefore, a half-year spending revaluation must be carried out and seen what can be postponed for the years to come. "Yes, it's a big deficit if we look the other way and, that's why, when it comes to spending for the rest of the year, we've always said we have to do a mid-year revaluation. We have the figures, this is the deficit and we need to make a reassessment of all the expenditure, all the expenditure in the budget. And we look at what we can postpone for years to come, what it is not urgent, what we have included in the budget and it is not urgent. I'm telling you, we're not going to postpone investments. Investments that have been budgeted and started this year are already in operation and will not be postponed. They will have extra money allocated. But there will be other expenses that can be postponed, I have discussions with the loan authorising officers, things they wanted to do and we can do next year," explained Florin Cîtu.

The implementation of the consolidated general budget in the first six months of 2020 registered a deficit of 45.17 billion RON (4.17 pct of GDP), according to data published on Tuesday by the Ministry of Public Finance.

"More than half of the deficit, i.e. 23.04 billion RON (2.13 pct of GDP), is generated by the amounts left in the economic environment through the fiscal facilities and exceptional expenses adopted to combat the effects of the COVID-19 epidemic," MFP states. 

In the first five months of this year the budget deficit stood at 38.84 billion RON (3.59 pct of GDP), while in the first half of 2019 it was 19.96 billion RON, or 1.94 pct of GDP. 

A month ago, the Minister of Finance declared that Romania will register this year a budget deficit of 6.7 pct of GDP, and the economic contraction will be at the end of the year at 2.2 pct of Gross Domestic Product.