Romania will have to introduce a fiscal corrective package to address the increase in the structural public deficit generated by non-discretionary spending, such as pensions and public wages, a report by UniCredit bank shows.\u00a0<\/p>\n
“Due to parliamentary elections being held very late in the year, we now see a risk that the budget deficit could exceed 7% of GDP in 2024,” the bank warns, adding that the government could cut spending or decide to run in arrears to window dress the yearend figure.<\/p>\n
The bank expects the economy to grow by 2.4% in 2024 and 1.3% in 2025 (as an effect of the fiscal corrective package), with the government tightening fiscal policy only after this year’s elections.<\/p>\n
It also expects a 2pp increase in the VAT rate (from 19% to 21%) and higher excise duties, property and commodities taxes.<\/p>\n
Coupled with a much smaller increase in pensions next year, UniCredit analysts believe this could lower the budget deficit to close to 5% of GDP in 2025, provided arrears are not too big.<\/p>\n
The tax authority ANAF will need another year to prepare its systems for a move to a progressive income tax (PIT) in 2026, which would help lower the budget deficit further towards 4% of GDP, according to the bank’s report.<\/p>\n
Along with Hungary and Slovakia, Romania is at risk of downgrading the rating if taxes do not increase next year.<\/p>\n