Romania's draft budget for 2019 targets “a moderate fiscal tightening” to a 2.6%-of-GDP deficit, down from 3% in 2018 under ESA methodology, in a move “towards strengthening the public finances and reducing economic imbalances”, but the draft budget is based on optimistic assumptions and fails to clarify uncertainty over the new bank tax, Fitch Ratings says.

The Government has based its budget on a GDP growth forecast of 5.5%, much higher than Fitch's projection of 3.2%. It projects nominal revenue growth of 15.7%, far over nominal GDP growth, and assumes revenue gains from fighting tax evasion of 0.7% of GDP, Fitch commented.

The rating agency said that it would reassess the 2019 budget balance forecast, previously projected at 3.5% of GDP, but added that it remains skeptical that the Government will meet its 2.6% of GDP target given the optimistic growth and revenue assumptions.

The 2018 budget deficit on an ESA basis was 3.0% of GDP, in line with the Government's target and Fitch's forecast. However, one-off measures helped reach this deficit, which will be difficult to sustain in 2019, the rating agency commented.

Romania envisages further fiscal consolidation in 2020-2022, but the deficits are still above those pledged to the European Commission, which has yet to respond publicly to the draft budget.

Romania’s government to defer passing budget bill by February 8

editor@romania-insider.com

(photo source: Shutterstock)