We have reservations regarding the inclusion in the budget forecast of some sums from improving the collection efficiency, according to the opinion sent by the Fiscal Council regarding the draft Law on the Budget for 2023. It is more likely that we will have lower revenues than planned indicators, and unplanned expenditures by at least 0.58% of GDP, the document also states.

Generalization of the conclusions of the Fiscal Council:

• The construction of the budget for 2023 envisages a target deficit of the cash budget at the level of 4.4% of GDP, which is a decrease of 1.34 percentage points. compared to the level predicted by the Ministry of Finance for 2022 (5.74% of GDP). The corresponding level of the ESA 2010 budget deficit target for 2023 is also 4.4% of GDP and, compared to the level estimated by the Ministry of Finance for the previous year (6.2% of GDP), this is a reduction of GDP by 1.8 percentage points. .

• The projected reduction of the treasury deficit in 2023 occurs through an increase in budget revenues by 0.9 percentage points of GDP combined with a decrease in budget expenditures by 0.44 percentage points of GDP.

• Looking at the expected inclusion in the budget forecast of additional sums resulting from the desired increase in collection efficiency, the CF has a reservation to consider them at this time, based on the principle of prudence.

• The Fiscal Council estimates that lower revenues compared to the goals provided for in the draft budget are likely to be about 11.3 billion lei, which is about 0.73% of GDP. This is explained by taking into account the collection level (lower by 8.7 billion lei compared to the forecast) and the overestimation of some tax revenues by 2.6 billion lei.

• The planned reduction of budget expenditures, expressed as a share of GDP, is a consequence of a decrease in the nominal expression of subsidies, as well as moderate growth rates in nominal terms and significantly lower than the projected nominal GDP dynamics of expenditures on social assistance, goods and services, personnel and interests. This reduction is partly offset by a significant increase in spending on projects financed by European funds, especially those related to PNRR, and capital expenditure.

• CF estimates that the additional need for budget allocations is about 5 billion lei for spending on goods and services, at least 2 billion lei for social assistance, respectively, at least 2 billion lei for interest spending. In total, the CF estimates budget shortfalls of at least 0.58% of GDP.

• CF assesses the construction of the 2023 budget as compatible with a the cash deficit is about 5.7% of GDP.

• Future budget adjustments should identify adjustment measures to move closer to the 2023 budget deficit target.

• An additional constraint for the state budget is created by expenditures on public investments that do not have permanent financing, especially the capital expenditures component under the influence of a significant increase in defense expenditures and the credit component of the PNRR. This limitation can be mitigated by increasing income and/or redistributing resources. However, the problem lies in the very limited fiscal space.

• The process of budget consolidation is vital for Romania for reasons of stabilization of the level of public debt, reduction of internal and external vulnerability, stabilization of the national currency and protection of macroeconomic balance, improvement of the country’s rating.

• In the European public debate, there is an idea not to include additional investments and defense expenditures in the budget deficit. At least in the short to medium term, the economic impact of the deficit cannot be offset by the expected benefits in the more distant future. Any additional spending, if financed by debt, cannot but be reflected in the public debt and deficit.

• According to the projected medium-term fiscal and budgetary structure, it is expected that the consolidation of the budget in the period 2024-2026 will be achieved mainly at the expense of budget expenditures, but the CF has question marks about the realism of this approach. In the absence of a reliable policy that would support the achievement of medium-term fiscal and budgetary consolidation and by increasing budget revenues, the balance of risks is tilted towards fixing higher deficits than expected in the coming years.

• Fiscal consolidation, even if it weighs on future economic growth, a deterrent effect that can be countered by a massive absorption of European funds, is an urgent necessity; postpone its implementation with measures affecting the structural deficit, relying only on the continuation of the favorable cyclical development of the economy and the effect (positive from the fiscal point of view) of inflation, not presenting, in CF’s opinion, viable options.

• Fiscal consolidation is essential for joining the euro area.

• The very unfavorable general context means that for Romania, European funds (CFM and PNRR) become extremely important: together with own resources or borrowed from the budget (which finances capital expenditure), European money can bring investments of more than 7% annually – what is foreseen fiscal and budgetary strategy for 2023-2025. European money also helps Romania’s external balance, additional protection against currency pressure, speculative attacks.

• EU membership offers undeniable advantages in terms of sources of financing (European money) and even financial creditworthiness, but it cannot be a panacea or a complete guarantee.

• The Budget for 2023 and the Fiscal Budget Strategy for 2023-2025 are being built in an extremely complex and difficult international context, unprecedented since the Second World War, which was also marked by the invasion of Ukraine.

• The international context is defined by the economic and security consequences of the war in Ukraine, the energy crisis caused by a very large increase in the relative price of energy (an increase exacerbated by the war), persistently high inflation, tightening financial conditions in the markets, the food crisis, the fragmentation of the global economic system and the regionalization of supply chains and, just as importantly, worsening the effects of climate change.

• Security, which is understood in technological, military and economic terms (as provision of vital goods of citizens), has priority in state policy.

• “Surprise” inflation contributed to budget execution in Europe and a cap on public debt as a share of GDP in 2022. This impact on the budget balance is limited, and the medium- and long-term fiscal and budgetary forecast should take into account the negative consequences of the persistence of possible high inflation.

• In order to bring inflation closer to the target in several years, an appropriate mix of strategies is needed: monetary policy to control inflationary expectations, prudent fiscal policy, industrial policy measures to support production.

• Current and future challenges are straining public budgets, especially in countries with low tax revenues. Romania, with tax revenues (including contributions) amounting to about 27% of GDP, is at the bottom of the European hierarchy. CF again emphasizes the need to increase the state budget’s own revenues.

See the full conclusion of the Fiscal Council