Fitch expects the economy to recover from 2021 but uncertainty around political and policy developments, combined with a resurgence in domestic and global coronavirus infections, continue to cloud the economic and fiscal outlook. A weak track record of fiscal consolidation despite high growth in recent years and high budget rigidities will also continue to pose significant public finance challenges over the medium term.
Fitch forecasts the general government deficit to widen to an all-time high of 9.5% of GDP by end-2020 (from 6.4% in September and compared with the revised budget projection of 8.6%) as expenditure rises rapidly due to automatic stabilizers and support measures to help tackle the coronavirus pandemic. It also reflects the impact from the September pension increase, which was contained from an original 40% to 14% via an emergency decree in late August, and the acceleration of capital expenditure.
Fitch expects a narrowing of the general government deficit to 6.8% in 2021 and 4.5% in 2022 reflecting a cyclical recovery in revenue and unwinding of support measures. Fitch’s baseline scenario assumes that the outgoing parliament, which is controlled by the opposition, does not manage to reinstate the original 40% pension increase, as the president and government are likely to delay this move until after the upcoming parliamentary elections (scheduled for 6 December).
Fitch expects the Romanian economy to contract by 5.0% in 2020.