2019 ended with a budget deficit of 4.6% of GDP, above the 4.4% forecast at the budget revision of November 2019.
In this context, analyst Aurelian Dochia told MEDIAFAX that 2020 could be even more unfavourable than in 2019, adding that forecasts of over 4.5% of GDP for the budget deficit were unveiled ever since December 2019.
Dochia believes the 2020 state budget is pretty optimistic too since it starts from a 4% economic growth, above most forecasts issued by international bodies.
Dochia pointed out the most important thing for the government is to present to the European Commission a series of credible plans to keep a tight grip and reduce the budget deficit in the coming years. The European Commission may launch the excessive deficit procedure against Romania mid-2020, as per an analysis report of ING. The procedure may increase the state’s financing costs.
In turn, analyst Dragos Cabat thinks the budget deficit of 4.6% of GDP is based on considerably low budget collections and wage and pension increases they economy cannot uphold. Cabat emphasized that all decision-makers in Romania know that pension hikes cannot be operated, adding the planned 40% pension increases as of September 1, 2020 should be put off one way or another.
The 2020 state budget includes the amount of over RON20 billion needed to increase pensions as of September 1 and the budget deficit estimated for 2020 is 3.6% of GDP.
Romania’s Fiscal Council recently said in its stance on the state budget law and social security budget law for 2020 that the budget deficit is expected to reach 4.6-4.8% of gross domestic product, at least 1% higher than the Finance Ministry’s target. It also said the planned increase in the pension point by 40%, as of September 1, 2020, comes in the context of a huge budget slippage that already exists, and the impact of this measure, as well as of the other measures included in the new pension law, will be entirely observable in 2021, triggering an increase in the share held by social assistance costs by an additional 1.85 percentage points of GDP, compared with the current year, and a budget deficit around 6% of GDP.
The Council added that additional measures on budget revenue and expenditure are needed to ensure convergence with the deficit target proposed for 2020.