Mid-year budget deficit figures red flag risk of overshooting 3 pct year-end target (employers' confederation)

The 'Concordia' Employers Confederation expresses concern over Romania's macroeconomic balances having progressively deteriorated lately, as the 6-month budget deficit of 1.61 pct of GDP - 2.4 times higher compared to the same period of the year before - raises a red flag as to the imminent danger of overshooting the year-end target of 3 percent. 

"With the annual inflation rate having constantly hovered above 5 percent in the past months, eroding the purchasing power and the real value of both consumers and companies, the mid-year budget deficit of 1.61 pct of GDP - up 2.4 times from the same period of the previous year - raises a red flag about the imminent danger of overshooting the 3 percent year-end target. It should be also noted that exceeding this figure would occur in a time of economic growth when it would be normal for the deficit to narrow against the backdrop of a rise in tax revenues. More than that, the widening of the budget deficit in the past one-and-a-half year has not been accompanied by a visible improvement in the volume and quality of public services - healthcare, education defence, let aside the stagnation in the development of infrastructure, road and rail in particular," the confederation said in a release this Monday. 

The employers' confederation also cautions that exceeding the budget deficit target and the widening of the balance of payments current account deficit renders Romania vulnerable to potential external shocks and creates the risk of an economic hard landing, as it happened during the 2009 - 2010 crisis period. 

"Back then, corrective actions included wage cuts, tax rises and other painful measures that affected both companies and the population. Adopting a new set of such measures, which may become necessary if addressing the current imbalances is further delayed, could lead to an increase in insolvency numbers and could trigger a new wave of departures from the country, which would worsen the acute workforce deficit most economic activities are already facing. The business environment has constantly cautioned against the unsustainable character in the long term of certain measures taken by the current government, particularly those regarding wage and social welfare policies, the amount of which should have been correlated with the real possibilities of the economy. Also, the European Commission, through its country-specific recommendations, has insistently signaled in recent years that Romania needs to adopt measures to meet the budget deficit target and respect our country's commitments under the medium-term budgetary objective (MTO). However, these warnings remained unanswered. Now, when Romania prepares to take over the EU Presidency and should therefore set an example of honoring its obligations towards its partners, deviations from these commitments risk undermining its moral authority regarding the possibility of promoting its own agenda during this extremely propitious period it will meet again only in a decade," the document reads. 

Concordia is the representative employers' confederation set up in 2007 that brings together the most powerful industry federations in the Romanian economy and incorporating seven of the top 10 companies by number of employees and turnover.