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EU Commission warns Romania on rising C/A deficit, loose fiscal policy

EU Commission warns Romania on rising C/A deficit, loose fiscal policy EU, Romania (Author: SeeNews). License: all rights reserved.

BUCHAREST (Romania), June 5 (SeeNews) - Romania's widening current account gap and expansionary fiscal policy can hamper the country's economic growth, the European Commission said on Wednesday.

"The Commission’s analysis led it to conclude that Romania is experiencing macroeconomic imbalances. In particular, vulnerabilities are linked to diminishing cost competitiveness and a widening current account deficit in a context of an expansionary fiscal policy and an unpredictable business environment. Recent legislative initiatives create risks for the functioning of the financial sector and may harm private investment," the EU's executive body said in a country report for Romania, part of its European Semester Spring Package 2019.

The Commission 2019 spring forecast projected a general government deficit above the 3% of GDP Treaty reference value in both 2019 and 2020. 

The European Council is of the opinion that significant further measures will be needed as of 2019 to comply with the provisions of the Stability and Growth Pact, in light of a strongly deteriorating fiscal outlook, the Commission noted.

"Romania's budgetary planning regularly ignores the provisions of the national fiscal framework. The national structural deficit rule requires compliance with or convergence to the medium-term budgetary objective of a structural deficit not exceeding 1% of GDP," the Commission said.

Romania current account was in deficit of 1.212 billion euro ($1.362 billion) in the first three months of 2019, compared to a gap of 1.027 billion euro in the prior year.

Romania has made limited progress in addressing the 2018 country-specific recommendations regarding tax compliance and collection, public procurement, social dialogue improvement, access to quality education, quality of healthcare system, public investment project preparation and project prioritization as well as preparation in public investment, the Commission said. 

Romania needs to correct the significant deviation from the adjustment path toward the medium term budgetary objective, strengthen tax compliance and collection and safeguard financial stability and the robustness of the banking sector, the Commission said. Also, the Commission recommends the country to ensure minimum wage setting based on objective criteria, and required that legislative initiatives do not undermine legal certainty by improving the quality and predictability of decision-making.

In the social area, the Commission recommends an improvement in the quality and inclusiveness of education, in particular for Roma and other disadvantaged groups. 

($=0.8867 euro)