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BNR report: the behaviour of the fiscal policy and that of income keeps its relevance as  an important source of risks

The behaviour of the fiscal and income policy keeps its relevance as an important source of risks during the interval of projection, says the Quarterly report on inflation. ‘On the basis of the most recent information regarding the budgetary execution, the behaviour of the fiscal and income policy keeps its relevance as an important source of risks during the interval of projection. The configuration of these policies, under the specter of the electoral calendar of 2019-2020 – with successive rounds of presidential elections, local and parliamentary ones- appears a? necessitating compensatory measures, with a view to getting within the budgetary limits together with the definition of the public finances solidity. Such measures will contribute to ensure a balanced mix of economic policies, including from the perspective of a compression of the aggregated demand in the economy and implicitly the diminution of the risks of amplification of foreign imbalance’ the report says.

Similarly, the report mentions that the annual rate of inflation (the indicator of the consumption prices) is estimated to get to 3.8% at the end of the year, the value placed outside the target interval. This position is determined by the persistence of the inflation pressure associated to the aggregated domestic demand, as well as by the unfavourable shocks such as the offer of the first months of the year ( the ample increase of price for pork, tobacco, tariffs for certain services in telecommunic, vegetables, which were slightly slowing down during the second part of the year).

According to the Report BNR, the balance of risks at the estimated annual rate of inflation is evaluated to be inclined in the sense of upper slide from the route included in the basic scenario. from this perspective, still relevant are the uncertainties which come from the behaviour of fiscal policy and that of income, while, in the case of the future evolution of the administered prices, the risks seem to have become more relevant.

Starting with Q1 2020 the inflation rate will go back within the target interval, but it will be placed in the superior half until the horizon of the projection. The anticipated values for the end of next year and for Q3 2021 are 3.1% and 3.2% respectively.

BNR mentions that the risk factors are localized in  the foreign environment, they being evaluated to exercise an impact clearly desinflationist.In the present context, the future dynamics of the prices represent an increase source of uncertainties. Inflationist pressure could come from the prices of electricity and natural gas, the evaluation of their magnitude being influenced by the persistence of the uncertainties regarding the deregulation of these markets. On the other hand, this could be made in a gradual way according to the calendar of deregulation proposed in the Senate. On the other hand, the possibility of a deregulation made suddently, in the context of a possible annulment of the restrictions imposed on the market of energy through OUG no.114/2018, later modified by OUG 19/2019. Depending on the adopted scenario, the supplementary impact – as compared to the coordinates of the basic scenario – on the annual rate of inflation, would be spaced out on a period  longer in time.  Firstly, more concentrated and more involved in inflationist pressure on short term, in the second case.
The report on inflation shows that a risk factor which keeps its relevance on the behaviour fiscal policy and that of income, in the context of the electoral calendar of 2019-2020, with successive rounds of presidential, local and parliamentary elections.

At the same time, but due to the profile of budgetary execution from the first three semesters of 2019, on a short term could impose the possible measures with a view to avoiding the surpassing the value of 3% and thus, the risk of starting the specific procedures of the corrective arm of the Pact of stability and growth. At the same time, on a long term and medium term, another source of risks and especially uncertainties refers to the implementation of the provisions of the new law of pensions.

In the present form, this has the potential to make necessary corrections with a view to keeping the budgetary deficit under the threshold of 3% of GDP, from the perspective of the sustainability of the public finances. From these reasons, there are still uncertain the moment of starting the fiscal consolidation as well as the rhythm and the magnitude, which makes difficult to evaluate the impact of these evolutions on the coordinates of the inflation from the basic scenario of the projection.