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EC releases Spring Forecast, warns Romania about a significant deviation from the medium-term budgetary objective

EC releases Spring Forecast, warns Romania about a significant deviation from the medium-term budgetary objective
The European Commission has sent a warning to Romania of a significant deviation from the adjustment path in 2016 to reach the medium-term budgetary objective and recommends that the Council adopts a document requiring Romania to make the necessary measures in 2017 in order to correct this significant deviation, a communiqué from the EC reads.

The EU executive states that it is the first time that this procedure applies to the EU’s economic governance framework. This enables the authorities to make corrective action to avoid the opening of a procedure for excessive deficits, agerpres.ro informs.

In its Spring Economic Forecast published on Monday, the European Commission expects euro area GDP growth of 1.7% in 2017 and 1.8% in 2018.

The economic forecast shows that growth in the EU is gaining strength and unemployment is continuing to decline. Yet the picture is very different from Member State to Member State. Tackling the causes of this divergence is the key challenge we must address in the months and years to come, the report reads.

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: “Today’s economic forecast shows that growth in the EU is gaining strength and unemployment is continuing to decline. Yet the picture is very different from Member State to Member State, with better performance recorded in the economies that have implemented more ambitious structural reforms. To redress the balance, we need decisive reforms across Europe from opening up our products and services markets to modernising labour market and welfare systems. In an era of demographic and technological change, our economies have to evolve too, offering more opportunities and a better standard of living for our population.”

Regarding Romania, the report reads: “In  2016,  the  general  government  deficit  rose  to  3.0%  of  GDP,  from  0.8%  of  GDP  in  2015.  Tax cuts, particularly the four percentage point cut in the standard VAT rate, had a negative effect on tax revenues.  On the expenditure side, public wages rose considerably. In 2017, the general government deficit is projected to further deteriorate to 3.5% of GDP.  The standard VAT rate was cut by an additional one  percentage  point  and  the  extra  excise  duty  on  fuel and the special construction tax    were  abolished. The 2017 budget contains large increases of public wages and social   benefits, including an additional pension increase of 9%, on top of the standard indexation, which is scheduled for July 2017.  The deficit is projected to further widen to 3.7% of GDP in 2018. As a consequence of fiscal easing, Romania’s structural   deficit is forecast to increase from around  half  a percent of  GDP  in 2015 to around 2½% in 2016 and 4% in 2018. Despite strong GDP growth, the debt-to-GDP ratio is thus projected to rise from 38% of GDP in 2015 to 40.9% in 2018. The draft unified wage law poses a significant risk to the fiscal forecast, with a potential impact on the general government balance of up to -2% of GDP in 2018. Its final form and schedule was not known at the cut-off date of this forecast.

According to a preliminary estimate published in April by Eurostat, four European Union Member States, including Romania, had a government deficit (calculated on the basis of ESA methodology, the European System of Accounts) of 3% or more of the GDP.

Spain recorded a negative balance of 4.5% of GDP, France a deficit of 3.4% of GDP and Romania and the UK a deficit of 3% of GDP./IBNA

Source: romaniajournal.ro

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