The significant fiscal consolidation measures recently adopted by the Romanian government are “an important and positive step” towards complying with the new Excessive Deficit Procedure (EDP) recommendation, provided that all measures are fully and swiftly legislated and implemented, Valdis Dombrovskis, Executive Vice-President of the European Commission responsible for Trade and Economy said in his remarks after the July 8 Ecofin meeting in Brussels.
“We will monitor progress closely and come forward with our assessment in autumn,” Dombrovskis said.
The Council thus gives Romania more time to comply with the new EDP recommendations (primarily the 2.6% revised from 5.1% rise of its net expenditure this year) by implementing the first fiscal package and coming up with more reforms – including but not limited to those in the January 21 recommendations.
“Given the recent deterioration of Romania’s fiscal position relative to the medium-term fiscal-structural plan, the scope of reforms in that plan, in particular those that have a more direct bearing on the fiscal outlook and debt sustainability, needs to be upscaled,” the Council’s July 8 recommendations reads.
The forthcoming tax reform should aim to generate additional revenue significantly above the 1.7% of GDP that was envisaged in the plan.
Romanian finance minister Alexandru Nazare formally presented at the July 8 Ecofin meeting the first fiscal package promoted in Parliament by the government on July 7, under a procedure that envisages the enactment of the bill without a vote unless the opposition files a no-confidence motion within three days. The bill will thus be enacted on July 10 at the earliest or after the no-confidence vote three days later (unless the government is overthrown).
Romania thus avoids a negative recommendation from the Council of the European Union, which would have come on July 8 in the form of a verbal indication first to be formalised in a written format only in October. However, Romania should take effective action and present the necessary measures to ensure the timely correction of the excessive deficit by October 15 [in order to avoid sanctions], according to the written Recommendations issued by the Council.
The Council’s July 8 recommendations follow its June 20 conclusion that Romania failed to submit its annual report on the actions and failed to take effective actions in line with past recommendations.
The Council also reiterates the revised trajectory for Romania’s nominal growth rate of “net expenditure” – a benchmark compiled by the EU based on the corrections operated on the primary budget balance. The revised trajectory takes into consideration the fiscal slippage last year, expected to continue in 2025 unless measures are taken.
The magnitude of the slippage versus the trajectory under the 7-year fiscal consolidation plan, mainly accumulated in 2024, is estimated by the Commission at 1.7% of GDP.
iulian@romania-insider.com
(Photo source: Paulgrecaud/Dreamstime.com)
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