The budget deficit is at risk of surpassing 6% of GDP by the end of 2023, according to Valentin Lazea, the chief economist of the Romanian National Bank (BNR), which directly contradicts Prime Minister Marcel Ciolacu’s target of a 4.4% deficit, according to Euractiv.
This projection of 6% would signify a regression from the 5.7% of GDP recorded in 2022. In the first five months, the budget deficit reached 2.32% of GDP, increasing by 0.6% compared to the previous four months and 0.8% compared to the same period last year.
Lazea warned that failing to achieve even a marginal reduction in the budget deficit compared to the previous year would cause “consternation in Brussels and the financial markets,” as such a situation would be “unprecedented at the EU level”.
In 2021, the Council adopted a recommendation under the excessive deficit procedure for Romania “to put an end to the excessive deficit situation by 2024 at the latest”. If the misconduct continues, the Commission can withhold cohesion funds and impose financial penalties of up to 0.2% of the national GDP.
Lucian Croitoru, a counsellor at the BNR’s governor, also expressed concern about the potential impact of a financial crisis in a major global economy on a country with such a high public deficit.
In 2022, the budget deficit reached 5.68%, against 6.72% in 2021, due to the pandemic circumstances and 9.61% in 2020, according to data from the Ministry of Finance.
The only country in the EU under an excessive deficit procedure, Romania has also faced macroeconomic vulnerabilities linked to the high and persistent external deficit, the European Commission noted in its 2023 country report.
Salaries and pensions have the most significant impact on the public budget, however, the special pensions reform has been postponed.
Both economists from the National Bank shared their views in an analysis published on OpiniiBNR.ro, a platform where experts from the National Bank of Romania discuss macroeconomic trends.