Valdis Dombrovskis, the vice-president of the European Commission, and Pierre Moscovici, European Commissioner for Economic and Financial Affairs, sent on February 22 a letter to Romanian Finance Minister Viorel Stefan, warning that the country’s budget deficit could exceed 3% this year, based on available data, and asking the Government to take clear measures to reduce it.

The letter mentions the European Commission’s winter forecast, which estimates that the deficit could reach 3.6% this year and 3.9% of the GDP in 2018, reports local Cursdeguvernare.ro.

The EC officials added that there is a “clear risk”, based on the European Commission’s forecast, that Romania will not meet the targets set by the European Fiscal Stability Treaty, which include maintaining a budget deficit of under 3% of the GDP, a public debt of under 60% of the GDP, and a structural deficit of under 1% of the GDP.

The letter also says that Romania is “estimated to have significantly deviated from its medium-term budgetary objective (MTO) last year”.

“These adverse fiscal developments mainly stem from fiscal easing that includes a number of tax cuts combined with increases in wages and pensions,” the letter adds.

The EC will reassess “Romania’s compliance with its obligations” in the Spring Forecast. “It will be important that the necessary measures to ensure compliance with the deficit criterion(...) are credibly announced by that time,” according to the letter.

The Finance Ministry issued a statement yesterday saying that Romania will meet the deficit target this year, namely under 3% of the GDP. According to the Finance Ministry, the EC has sent only a formal letter to Romania, as the Commission hasn’t identified any economic imbalances in Romania, whereas such imbalances were found in 12 EU member states.

The difference between the Romanian Government’s deficit estimates and those of the EC stem from different methodologies used. The Government has based its 2017 budget project on an economic growth of 5.2% this year while the EC estimates that Romania’s economy will go up by 4.4%.

editor@romania-insider.com