Economic Developments and Budget Consolidation

On Wednesday, the Romanian Government will hold a public debate on the 2016 draft budget, attended by the ministers of finance, transport, European funds and agriculture.

Daniela Budu, 08.12.2015, 14:40

This week, the Romanian Government will adopt the 2016 draft budget, to then submit it to Parliament for debate and approval. The Defense, Interior, Education and Health Ministries will get more money next year, while Labour and Transportation will get less. Budget revenues are estimated to grow by 0.8 billion Euros next year, and expenditure to be 3 billion Euros higher, to also cover the fiscal relaxation measures already approved by Government and Parliament.

The budget was built on the basis of a deficit of maximum 3% of the GDP, as established by the EU, and an economic growth rate estimated at 4%. As for a potential increase in the minimum salary, the Finance Minister Anca Dragu has stated that such a decision should be correlated with the results of an impact study on the effects of such a decision on the private sector in the first quarter of 2016. Minister Dragu has also stated that such an increase might reduce Romanian companies’ competitiveness, which would thus have to lay off staff, or to reduce production and exports.

Also, the measure might drive away investors from certain sectors and have the labour force migrate from the white to the gray or even black areas. According to minister Dragu, increasing the minimum salary might affect those who have just entered the labour market, the young and the unskilled workers. As for the impact on the public sector, this would be very low, as salaries have already been increased by 10 up to 25%.

Talks are being held against the background of the current Government’s decision to freeze the minimum salary at a level of 1,050 lei (approx. 238 Euro), although the previous executive had promised a minimum salary of 1,200 lei (272 Euros) as of January 1st, 2016. The Social Democratic Party has announced it will not accept the rise of the minimum salary. The leader of the party, Liviu Dragnea, has warned that the value of 1,200 lei for the minimum salary was established on the basis of a study conducted by the Labour Ministry, at the request of the IMF.

In turn, the co-president of the National Liberal Party, Alina Gorghiu, has stated that, in principle, the Liberals are satisfied with what next year’s budget looks like, saying that the Ciolos Government needs support. In another move, the National Statistics Institute has announced that Romania’s GDP went up by 3.7% in the first quarters of the year, as compared to the same period of last year. Contributing to that were most sectors of the economy, except for agriculture, forestry and fishery.