Warnings regarding Romania’s public finances

The new Government of Romania promises not to cut public pensions and salaries, in spite of concerns regarding the public finances

Daniela Budu, 07.11.2019, 13:51

Ever since taking the office, the new Finance Minister Florin Citu announced that the state of the public budget is worrying, and that next week he would present a report on the state budget execution:

Florin Citu: “The state budget execution is worrying. Nine months into the year we have a budget deficit over 2.6%. I expect the October figures to be even higher. This confirms our worst fears of the past 2 years. We have to operate a budget correction by November 30, and of course we have to draft the budget for 2020 by the end of the year, if possible. We only have one problem, the resizing of the Cabinet from 28 to 16 ministries. This means that the draft budget currently on the Ministrys table must be updated.

The Governor of the National Bank of Romania, Mugur Isarescu, also voiced concern with a prospective deterioration of the budget deficit. According to the central bank, the future fiscal and state revenue policy may entail uncertainties and high inflation risks, particularly in the context of the 2019-2020 elections. Isarescu says however that he hopes this will not happen, and that viable solutions must be found, to keep imbalances from worsening:

Mugur Isarescu: “We know that it is hard to switch away from a 3-year long pro-cyclical policy, we had 4%, 5% and 7% economic growth rates with a budget deficit near the 3% ceiling, when we were supposed to have smaller deficits. It is hard to move away from this policy, but it is not impossible, and we will talk about this with the Government. We said we were concerned, but this is not to mean that we are scared.

On the other hand, international financial institutions are optimistic as regards the future performance of the Romanian economy. The European Bank for Reconstruction and Development has upgraded its estimates regarding Romanias economic growth for this year and maintained its forecast for next year. According to a report released by the institution, Romanias economy is expected to see a 4% growth rate this year, as against the 3.2% rate forecast in May. And in 2020, the EBRD expects Romanias GDP to go up 3.2%. The inflation rose from 3.3% in December to an average 3.9% in the first quarter of this year, which is above the National Banks target, the report also reads.

In turn, the International Monetary Fund urges Romania to keep a restrictive monetary policy in place. In a regional economic report focusing on Europe, the IMF says such a policy is necessary if Romania is to keep inflation pressures in check. Last month the IMF revised its estimates for Romanias economic growth in 2019 from 3.1% to 4%.

(translated by: Ana-Maria Popescu)