Romania's Fiscal Council says fiscal package is small step in right direction

Romania's Fiscal Council estimates that this year's public deficit will rise from last year to 6% of GDP in cash terms and significantly more under ESA methodology, according to an opinion to the government's quasi-fiscal revision (OUG 90/2023 on public spending restrictions) and the fiscal package (Law 296/2023).

The cash deficit was heading towards 6.5%-6.6% of GDP in the absence of the government's measures aimed at cutting public spending. 

Deferring some public payments, including under the military contracts, may make the cash deficit look better without impacting the ESA deficit, though, the Council commented.

Last year's deficit was 5.7% and 6.3% of GDP, respectively.

The Council expects Romania's economic growth to slow down to 2% this year. The country's current account will narrow to 7% of GDP under the Council's scenario.

The impact of the fiscal package, seen by the Fiscal Council as a step in the right direction of more fiscal equity, is expected at 0.9%-1.4% of GDP in 2023. But the 3%-of-GDP is still a remote target, the Council warns.

The Fiscal Council has vocally criticised, in its opinion, the government's lack of fiscal transparency demonstrated in operating the de-facto budget revision this year. It also urged the executive to run genuine spending reviews aimed at identifying the areas where the spending can be cut with the lowest impact on public services.

As regards the fiscal consolidation needed after 2024, the Fiscal Council warns that cutting public spending will not be enough given the low level of budget revenues.

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