According to a decision by the Economic and Financial Affairs Council, part of the Council of the EU, Romania has failed to take effective action to correct significant deviation for its budgetary objectives. Ecofin met in Brussels between December 4-5.
During the meeting, the council issued a revised recommendation for Romania for correcting the significant transgression from the adjustment of structural deficit.
According to EU officials, “Romania is responsible for a significant deviation from the agreed adjustment path towards its medium-term budgetary objective.”
In the light of the Commission’s autumn 2017 economic forecast, Romania’s structural balance is expected to have deteriorated by 1.1 percent of GDP in 2017, the council argued, which is “contrary to the 0.5 percent of GDP structural improvement recommended by the Council in July 2017.”
Given this, Romania is facing the risk of generating a deficit estimated at 3.3 percent of GDP for 2017, which is above the EU’s reference value for government deficits and requires an excessive deficit procedure under the Pact’s corrective arm.
Furthermore, the Council pointed out the country’s government expenditure exceeds the benchmark previously set by the Council. “The growth of Romania’s net primary government expenditure has amounted to 4.9 percent of GDP in 2017, well above the expenditure benchmark of 3.3 percent set by the Council.”
In response, the Council called for measures ensuring a nominal growth of net primary government expenditure of no more than 3.3 percent in 2018, representing an annual structural adjustment of at least 0.8 percent of GDP. It recommends that any windfall gains be used for deficit reduction, and that budgetary consolidation measures secure a lasting improvement in the general government structural balance.
The Council set 15 April 2018 as the deadline for Romania to report on action taken in response to its revised recommendation.
Both the medium-term objective and the significant deviation procedure are part of the preventive arm of the Stability and Growth Pact, the EU’s fiscal rulebook. The preventive arm focuses on structural balances, i.e. budgetary balances corrected for cyclical, one-off and budgetary factors. It thereby isolates the impact of discretionary government policy action and spending on interest repayments.
Present in Brussels at the Ecofin meeting, Finance Minister Ionut Misa announced that Romania “promises to take necessary measures not to exceed budget deficit of 3 percent of GDP”.