Romania Given More Time To Tackle Deficit
Tuesday, February 9, 2010
Due to a more-severe-than-expected recession in Romania during 2009, the European
Commission - as part of its excessive deficit procedure - has recommended that the country’s deadline, for bringing its
budget deficit to within the Maastricht Criterion of 3% of GDP, is extended to 2012.
Economic and Monetary Affairs Commissioner, Joaquín Almunia, commented:
“Romania has made a serious effort to limit the deterioration of its budget
deficit and to preserve macro-economic stability during the past year. The worsening
of the economic situation since the initial recommendations were made justifies
extending the deadline by one year.”
“The consolidation effort must continue – in line with the conditions
attached to the multilateral financial assistance package – to ensure
the correction of the deficit by 2012."
In July 2009, the Council endorsed a Commission proposal to open the excessive deficit procedure
(EDP) for Romania, on the basis of a government deficit above 3% of GDP in 2008,
and recommended the correction below 3% took place by 2011. The Council decision
established a deadline of January 7, 2010, for effective action.
As part of measures to tackle the deficit, Romania reduced the public wage bill and cut public expenditure on goods and
services in 2009, in line with the recommendation. The 2010 budget also includes
a package of measures cutting expenditure by around 2% of GDP and raising revenue
by around 0.5% of GDP.
These measures included:
- Removing deductions afforded on fuel against taxpayers’ VAT and personal
income tax liability;
- The introduction of a mandatory minimum tax on small businesses to try to encourage
- VAT refunds were deferred for longer periods, although this unpopular decision
was recently reversed;
- The introduction of a tax exemption on reinvested profit; and
- A general crackdown on the grey economy that is thought to be worth around 11.3% of GDP annually.
Romania experienced a recession estimated at around
7% in 2009, against the Commission’s 4% forecast in Spring 2009. According
to the Commission, this was due to a large drop in exports and a contraction
in domestic demand caused by the global economic and financial crisis. Despite the aforementioned measures, the general
government deficit in 2009 is now expected to have reached 7.8% of GDP. The
2010 budget contains a target of 5.9%.
The Stability and Growth Pact foresees that where recommendations are complied
with but the economic situation deteriorates significantly and beyond the control
of the country concerned, the Council can revise the recommendations and the
deadline for the correction of the excessive deficit, as has been recommended
by the Commission.