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The EC recommends that Romania no longer postpone the budget correction

Concluding that Romania has not taken effective action in response to the Council recommendation of 18 June 2021, the European Commission recommends that the Romanian authorities tighten fiscal policy to achieve a fiscal adjustment for 2024 as a whole and take advantage of cohesion, resilience and other plans available to increase competitiveness.

It is an unprecedented warning and suggests that authorities in Bucharest should not postpone the preparation of the budget correction package, as planned, until after the elections scheduled for the end of this year. The Commission emphasizes that a draft budgetary reform strategy is expected at least “within due time”.

The former recommendation (fiscal consolidation) aims to address vulnerabilities related to large current account and general government deficits, while the latter helps address vulnerabilities related to cost competitiveness due to wage increases that exceed labor productivity growth and non-cost competitiveness due to structural bottlenecks, the Commission explains.

The ruling coalition in Bucharest has informally agreed to postpone the budget correction package until after the parliamentary and presidential elections – jeopardizing its entry into force from January 2025.

Romania must submit the medium-term budget structure plan “in a timely manner”, the Commission advises.

Although not specified, ‘timely’ means well before 2025. In fact, the deadline for implementing budgetary adjustments enforceable from January 2025 is the end of June, given the anticipated six-month period (which is not always respected) between the determination and application of tax changes.

Romania’s response to the Council recommendation of 18 June 2021 has been insufficient, the EC notes.

The Commission has concluded that Romania has not achieved the headline deficit target by 2023 and is not expected to end its excessive deficit by 2024.

According to the Commission’s spring 2024 forecast, the general government deficit will increase to 6.9% of GDP in 2024. The government debt ratio is expected to rise from 48.8% in 2023 to 50.9% at the end of 2024. The projected increase in the government deficit in 2024 reflects high growth in current government expenditure.

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