Effects of the pandemic on world economy

The coronavirus pandemic has had an impact on world economies, Romanias economy being equally affected.

Corina Cristea, 25.05.2020, 14:00

According to the EU methodology, Romania’s gross government debt is going to stand at 40.9% of the GDP at the end of 2020, as against 35.2% of the GDP in 2019, shows the 2020 Convergence Programme published by the Romanian Finance Ministry. The figure is the result of estimates related to an economic contraction of about 1.9%, a depreciation of the national currency against the EURO, given the use of the foreign- currency-denominated-debt system, and a deficit of more than 3% of the GDP, a consequence of the SARS-CoV-2 coronavirus pandemic.

Calculated according to the European System of Accounts ESA, Romania’s budget deficit is forecast at 6.7% of the GDP for the end of 2020, higher by almost 2.4% as compared to the 2019 value. The increase is due to the future augmented budget expenditures of 39.5% of the GDP — on the rise by 3.5% as against 2019. This is due, according to the Finance Ministry, to the significant increase in the share of social transfers in the GDP, as well as to the increase in the share of subsidies.

At the same time, the total revenue receipts of the government are estimated to grow from 31.7% of the GDP in 2019 to 32.7% of the GDP in 2020, the forecast being based on a moderate positive evolution of the salary fund and a drop in private consumption, in the context of the coronavirus pandemic. Financial experts recall that the pandemic has caused a loss of revenues, following the slowing down of economic activity, on the one hand, and an increase in expenses, on the other hand, for medical equipment and social assistance — payment of furloughs and indemnities for parents who stay at home to supervise their children, given the suspension of classes.

The Finance Ministry officials also recall that the excessive deficit procedure for Romania had already been launched, independently of the coronavirus crisis, because the ESA deficit had gone beyond the 3% of the GDP threshold in 2019, and the recommendation was to return to the 3% target until 2022. Against the backdrop of the coronavirus pandemic, the European Commission has, meanwhile, launched the General Escape Clause, which allows the member states to deviate from the established budget and fiscal targets, and the costs generated by the COVID-19 pandemic to receive special treatment. For Romania this means that, when the time comes for being assessed in terms of its budget deficit target, the assessment will be made by overlooking the costs generated by the pandemic.

The Finance Ministry document also shows that gross investments will be reduced by 2.6% in 2020, this being the result of the negative dynamics reported by the exports and imports of goods and services. As regards inflation for 2020, the estimated percentage for the end of the year is 3%. At the same time, in relation to economic growth on medium term, financial experts believe that it is going to return to 3% or 4%, the figure estimated ahead of the pandemic. (translation by Lacramioara Simion)