July 3 (SeeNews) - Romania's government will most likely have to hike its VAT in the future to improve its fiscal indicators, which have deteriorated as a resut of loose fiscal policies, Erste Group said in a regional report.
Slovenia is at risk of a significant deviation from its budgetary objectives, while its neighbour Croatia should adopt a balanced approach in an upcoming tax framework update, Erste Group said in a fiscal report for countries in Central and Eastern Europe (CEE) last week.
"The Romanian government will not be able to 'indefinitely' run such a loose fiscal policy and some corrective measures will be proposed at some point in the future," Erste noted.
With the second-lowest standard VAT rate in the EU, Romania has an obvious candidate at its disposal for bringing more money into the state budget, it added.
As for Croatia, long-term sustainability seems to be a small threat, but this stems mainly from the expected favourable impact of the removal of a considerable part of the burden from the state pay-as-you-go system, while demographic challenges remain substantial in the country and are likely to be further exacerbated by current emigration trends, Erste added.
"In addition, the good fiscal balance is only a very recent phenomenon in Croatia, making mid-term trends more challenging and demanding a balanced approach from the government in the upcoming tax framework update."
Slovenia managed to reach a fiscal surplus last year, but the country is at risk of a significant deviation from the adjustment path towards its Medium-Term Budgetary Objectives (MTO) in 2018, Erste said.
Still, since reaching debt peaks after or during the financial crisis, Serbia, Slovenia and Croatia have all managed to cut their public debt-to-GDP ratios more than the average decline of 5.5 percentage points in the euro area.
CEE countries are likely to see much stricter rules on the spending of EU funds in the 2021-2027 Programming Period, while the likely end of the ECB’s quantitative easing in the foreseeable future also increases the pressure to carry out reforms as the interest rate environment might become less favourable than what they have enjoyed over the past few years, Erste further said.