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The European Commission on Wednesday recommended a Council recommendation for the correction of Romania's excessive deficit by 2024.
Since 2020, Romania, unlike other member states, has been subject to the Excessive Deficit Procedure (EDP), to be reassessed this spring. On April 3, 2020, the Council adopted Decision (EU) 2020/5095 on the existence of an excessive deficit situation in Romania due to non-compliance with the deficit criterion in 2019. The excess over the 3% of GDP Treaty reference value was the result of a continuous build-up of fiscal imbalances due to an expansionary fiscal policy since 2016, in a period of strong economic growth.
According to the Romanian government's convergence plan for 2021, the medium-term fiscal-budgetary policy is geared towards the gradual reduction of the government budget and structural deficit without endangering the prospects for economic recovery. The budget approved for 2021 with a budget deficit level of 8% of GDP (in ESA terms) ensures an adjustment of 1.2 percentage points compared to 2020. In the medium term, a significant reduction in the budget deficit of approximately 6.3 percentage points is estimated by 2024, given a significant decrease in government expenditure as a percentage of GDP and a slight increase in revenues.
Also, the fiscal consolidation path is reflected in structural terms starting with 2021, when the structural deficit is estimated at 7.6% of GDP, falling to 3.6% of GDP in 2024, which generates an adjustment of about 4 percentage points over the medium term.
In its recommendation issued Wednesday by the European Commission, Romania should target a government deficit of 8% of GDP in 2021, 6.2% of GDP in 2022, 4.4% of GDP in 2023 and 2.9 % of GDP in 2024, which corresponds to an annual structural adjustment of 0.7% of GDP in 2021, 1.8% of GDP in 2022, 1.7% of GDP in 2023 and 1.5% of GDP in 2024 .
The European Commission also argues that Romania should fully implement the measures already adopted for 2021. In addition, it should implement additional measures that are necessary to be able to correct its excessive deficit by 2024. Budget consolidation measures should be implemented to ensure a sustainable correction in a way that does not harm economic growth, and any gains should be used to reduce the government deficit.
The European Commission recommends the introduction of an October 15, 2021 deadline by which Romania can take action and communicate its strategy for achieving its targets. Subsequently, Romania should communicate its progress with implementing this recommendation at least once every six months, until the excessive deficit has been corrected, according to the European Commission.
