EC: Romania Must Reduce Budget Deficit Below 3% Of GDP By 2011

According to EU rules, the member states must keep their budget deficits below 3% of the GDP.

"Based on the April notifications of the fiscal outcomes for 2008, the Commission today (Wednesday – e.n.) concludes that Lithuania, Malta, Poland and Romania are running excessive deficits," the Commission said in a statement.

EU’s executive arm recommends the European Council to decide in line with this opinion and make recommendations for bringing these situations to an end.

Thus, Poland has to reduce its budget deficit by 2012. Lithuania and Romania must cut their government deficits by 2011, while Malta has to bring its deficit below 3% of the GDP by 2010.

"As for Hungary, in view of the exceptional situation characterised by the depth of the current recession and the fragility of the financial sector, the Commission recommends to the Council … setting a new deadline for the correction of the deficit," according to the statement. Therefore, Hungary’s deadline was extended from 2009 to 2011.

Romania’s budget deficit was of 5.4% of the GDP in 2008.

The Commission noted that the global economic downturn has resulted in a sharp drop of private capital flows to Romania, leading to a significant deceleration of activity since the fourth quarter of 2008.

"The Romanian programme assumes GDP to contract by 4% for the whole of 2009, followed by zero growth in 2010 and 2.6% in 2011. Considering the absence of room for fiscal manoeuvre and the need to correct large fiscal and external imbalances, Romania envisages a restrictive fiscal stance between 2009 and 2011," the Commission said in a press release.

In line with the commitments made by Romania in the framework of the EU balance of payment assistance, the authorities envisage to undertake a significant fiscal consolidation effort, targeting a deficit of 5.1% of GDP in 2009, with the aim of reducing it to below 3% of GDP by 2011.

Furthermore, the programme foresees measures to improve fiscal governance, enhance financial sector regulation and supervision and step up structural reform.

"However, the budgetary outcomes are subject to downside risks, taking into account the uncertainty related to the macroeconomic scenario in 2009, the effective implementation of the planned expenditure measures and the lack of information on concrete measures needed to underpin fiscal consolidation after 2009," the Commission also said.

In view of this assessment the Commission recommends Romania to ensure the correction of the excessive deficit by 2011; to this effect, implement the fiscal measures as planned in the February 2009 budget and the April 2009 amended budget, especially in the area of public sector wages and pension reform.

Also, Romania should take further corrective action if needed to achieve the 2009 deficit target in order to ensure compliance with the commitments undertaken under the programme supported by EC balance of payments assistance.

The government needs to specify measures to buttress the envisaged reduction of the deficit in 2010 and 2011, in particular those underpinning the planned reduction of the public wage bill.