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2020, a difficult year for the economy

The government of Romania promises to implement a sustainable budget policy and to narrow the budget deficit.

2020, a difficult year for the economy
2020, a difficult year for the economy

, 28.01.2021, 14:00

According to a report on 2020 put together by the Finance Ministry, at the end of December Romanias budget deficit was nearly 10% of the GDP, double the figure for 2019.



The reasons for this increase are, on the one hand, the fall in budget revenues in March – December and the postponement of some tax payments by business operators, due to the coronavirus pandemic. Also contributing to this deficit were the stepped-up VAT returns designed to support private sector liquidity and the bonuses grated for the timely payment of profit and revenue taxes.



As regards budget expenditure, increased public investments were accompanied by exceptional payments required by the pandemic. Also, in order to mitigate the negative economic effects of the healthcare crisis, a number of governmental programmes were implemented, designed to support small and medium enterprises and large companies by means of state guarantees.



Specifically, the report reads, 4.45% of GDP was channelled into the economy through various tax facilities, investments and exceptional expenditure entailed by the corona crisis. And this came against the general background of the economy shrinking in 2020.



The unfavourable dynamic was also influenced by a fall in revenues from excises on energy products, as work-from-home rules and limited tourism activities dealt a heavy blow to fuel consumption.



According to the National Bank, the main risk incurred by the Romanian economy this year is the way in which the start of fiscal consolidation will reflect on the state budget. The central bank estimates that only in 2022 will the national economy revert to the level reported in 2019.



These days, the government is working to finalise this years state budget, based on a deficit target agreed on by Romania and the European Commission of around 7%. As the Liberal PM Florin Cîțu put it, this years budget must support economic recovery and lay the foundations for a strong economy in 2021-2024.



The bill is to be submitted to Parliament in February, accompanied by a large-scale package of reforms in 3 areas—public sector salaries, public pensions and fiscal administration.



The Social Democrats, in opposition, accuse the government of preparing austerity measures, and have drafted their own version for the state budget, claiming that an increase in Romanians living standards is achievable. (translated by: A.M. Popescu)

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