Romania, at one step of budget crisis
The budget deficit of Romania for the year 2024, calculated according to the European Methodology ESA (European System of Accounts), was provisionally estimated at 9.28% of GDP, according to information obtained by Profit.ro. This level represents a significant exceedance to the previous estimate of the European Commission (7.9%) and amplifies the pressure on the Government to reduce the deficit to 7% by the end of the year, according to the commitment assumed in the fiscal plan agreed with Brussels.
A major gap between expectations and reality
The official data of Eurostat, the Statistics Office of the European Commission, are to be published on April 22, but sources close to the Government confirms that the value of 9.28% reflects the current estimate of the ESA deficiency. Although provisional, the figure is an essential starting point for the budgetary calibers of the next period.
In parallel, the deficit in cash terms, published monthly by the Ministry of Finance and used at national level, was previously estimated at 8.65% of GDP (equivalent of 152.72 billion lei). The differences between the two types of reporting mainly concern the accounting treatment applied to expenses and income – the ESA does not allow, for example, to cosmetizing the deficit by postponing payments, a common practice in the last months of the year.
Risk of Losing EU funds
The high level of deficit puts Romania in a delicate situation in relation to the European Commission. In 2023, the Romanian authorities obtained an extension of the period of fiscal adjustment from 4 to 7 years, but on compliance with a clear calendar of reforms and investments. These commitments include the fiscal reform, with an estimated impact of 25 billion lei on the budget revenues.
However, the Minister of Finance, Barna Tánczos, announced that the fiscal reform will not enter into force earlier than January 1, 2026, which raises question marks on the ability of the Government to comply with its obligations. Romania must send to the Commission a report on the stage of implementing the reforms until April 30, and in June it will be evaluated within the European semester.
According to Profit.ro, the non-observance of the milestones established in the National Plan of Redress and Resility (PNRR) and in the fiscal plan agreed with Brussels could lead to the suspension of European funds and the loss of some installments from the PNR.
Pressures and uncertainties in an election year
The year 2024 is a political one from a political point of view, with several rounds, including presidential ones. In this context, the budget adjustment measures are limited, and the emphasis seems to fall on the control of expenses rather than on structural reforms. Economists, however, warn that a sustainable budget correction cannot be made without consistent fiscal measures and without a review of the public spending policy.
Romania remains with the prospect of negative rating from all three major international agencies (Moody’s, S&P and Fitch), which reflects the uncertainties regarding the stability of public finances. In the absence of credible measures and a clear trajectory to reduce the deficit, the risk of relegation of the country rating becomes increasing.
Context
The ESA (European System of Accounts) deficit is the main indicator used by the European Commission to evaluate the fiscal discipline of the Member States. Unlike the deficit in cash, this accounting standard includes all the state financial commitments, regardless of the moment when the payments are made.
