Romania must specify the fiscal consolidation measures for 2011 and 2012

Romania aims at the reduction of the general government deficit form 8% of GDP in 2009 to 3% of GDP in 2012, in line with the Council recommendation of 16 February 2010. The planned fiscal adjustment is front loaded with a greater consolidation effort envisaged for 2010 and 2011 than for 2012.

A full implementation of the consolidation measures foreseen for 2010 is essential to reach the 6.3% of GDP deficit target set for that year.

“However, the convergence program does not sufficiently specify the consolidation measures to be taken in 2011 and 2012 although additional information is expected to be included in the forthcoming 2011-2013 medium-term budgetary framework. Moreover, implementation of the fiscal governance reforms decided upon within the context of the EU balance of payments assistance programme to Romania should help in achieving the budgetary targets for these years”, European Commission said in a release.

Adoption and implementation of the draft pension reform will be crucial in improving the long-term sustainability of public finances. The invitations to Romania concern the specification and implementation of fiscal consolidation measures to correct the excessive deficit, improvements of the fiscal framework, and the adoption and implementation of the draft pension law.

On Wednesday, The European Commission examined the updated stability and convergence programmes of the Czech Republic, Denmark, Hungary, Lithuania, Luxembourg, Latvia, Malta, Poland, Romania and Slovenia against the background of the economic and financial crisis which has led to a sharp deterioration of public finances since 2009 and triggered the Council decisions to open Excess Deficit Procedures (EDP) for a large majority of Member States.

Within the batch of countries assessed, only Denmark and Luxemburg have kept their general government deficits below 3% in 2009, although their fiscal situation is set to deteriorate markedly in 2010.

For most countries this year will mark a fiscal consolidation process consistent with the recommendation set out in the EDPs and, in the case of Latvia, Hungary and Romania, with the conditions set out in the international financial assistance programmes. “As to the budgetary targets set out in the programmes, the growth assumptions underlying these projections are in several cases optimistic especially in outer years, while the budgetary consolidation strategy is often not sufficiently backed up by concrete measures from 2011 onwards”, EC said.

"The economic and financial crisis has taken its toll on public finances. Fiscal stimulus was necessary to support the recovery but the past two years have wiped out 20 years of fiscal consolidation. This means that we have to come back gradually to budgetary rigour next year at the latest ", said Economic and Monetary Affairs Commissioner Olli Rehn.

On Monday, the Updated Convergence Programme 2009-2012 was passed by the Romanian Government. The programme reaffirms the country’s commitment to adopt the single European currency by January 1, 2015 and forecasts an economic growth of 1.3% in 2010, and 3.7% in 2012, while containing the inflation rate within the target range set by the National Bank of Romania and lowering unemployment rates. 2010 Budget law envisages the reduction of the budget deficit to 5.9% of GDP.

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