EC says Romania's government deficit will reach 6.1pct of GDP by 2021

The new pensions law is the main factor causing the rapid increase in the general government deficit up to 6.1 percent of the GDP in 2021, and the high fiscal sustainability risks, the European Commission estimated in the Country Report for Romania published on Wednesday.

Moreover, Romania's ratings are at the lower limit of the "investment grade" with a "BBB-" or the equivalent rating of the sovereign debt from the three major rating agencies, the assessments being much more sensitive to the future direction of the fiscal policy, the EC warned. The value of the early-detection indicator of fiscal stress ("SO"), which assesses risk within one year is below its critical threshold.

"However, failure to put in place corrective fiscal measures, offsetting and/or modifying the scheduled significant pension increases, constitutes a key downside risk to Romania's ratings. In fact, on 10 December 2019, S&P Global Ratings revised its outlook on Romania from stable to negative precisely on these grounds," the Country Report shows.

Romania's public debt might significantly increase and the medium-term fiscal sustainability gap would expand, leading to high debt sustainability risks in the medium term. By 2030, the debt would exceed 90 percent of the GDP. The high fiscal deficit and the increase of costs due to the population ageing causes high risks in terms of long-term budget sustainability, the EC mentions.

The European Commission published on Wednesday the 27 country reports of the analysis called "2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No.1176/2011." AGERPRES