January 3 (SeeNews) - Romania's president Klaus Iohannis on Wednesday signed the 2018 budget bill into law despite concerns it is unrealistic.
This year's budget contains vulnerabilities relating to revenues, expenditures and deficit, Iohannis said in a statement.
The president emphasized that Romania must avoid the trap of unsustainable economic growth, mainly based on consumption, budget deficits and accumulation of public debt.
"The budget ignores the recommendations made by the European Commission in the context of the significant deviation of the budget deficit. According to these recommendations, the national budget was set to return to fiscal consolidation, through annual deficit adjustments of 0.5% of gross domestic product (GDP)," the president said.
Iohannis also expressed concerns about the fact that although Romania posted record economic growth in 2017, it also posted the largest deviation of the structural deficit among the European Union member states.
"Those dynamics demonstrate that, in the coming years, Romania needs to make serious efforts to get back to the path of fiscal-budgetary discipline. The 2018 budget ignores the need for such a change of direction, assumed by the government in its fiscal-budgetary strategy for 2018-2020."
The 2018 budget bill, approved by the parliament on December 22, is built on projections of 5.5% economic growth and deficit equivalent to 2.96% of GDP.
GDP in 2018 is estimated at 907.85 billion lei ($232 billion/196 billion euro). Budget revenues are projected at 287.5 billion lei, or 31.7% of GDP. VAT proceeds are forecast at 6.8% of GDP, excise duties at 3.3% and wage tax and income tax at 2.3% of GDP.
The budget expenditures in 2018 are projected at 314.5 billion lei, or 34.6% of GDP. Social security spending and public sector personnel costs amount to 10.9% and 8.9%, respectively.
The budget deficit equivalent to 2.96% of GDP is calculated according to the European System of Accounts (ESA) standards.
Romania's consolidated budget deficit increased to 1.21% of the projected 2017 GDP in the 11 months through November, from 0.72% a year earlier.
The 2017 budget bill is built on projections of 6.1% economic growth and deficit equivalent to 2.96% of GDP. In 2016, Romania's economy expanded by 4.8%.
Romania's annual economic growth accelerated to 8.8% in the third quarter of 2017 from 6.1% in the previous quarter on the back of strong performance of the agricultural and industrial sectors and on rising consumption. Overall, in the first nine months of 2017, Romania's economy grew by 7% on the year in non-adjusted terms and and by 6.9% in seasonally adjusted terms.
In November, Moody's Investors Service said that although Romania made material progress in correcting macroeconomic imbalances, these improvements could be eroded in the medium-term due to a loose fiscal policy and lack of reform.
Also in November, the European Commission said that Romania has failed to do enough to reduce its 2017 budget deficit and that the necessary annual adjustment needs to be at least 0.8% of GDP. The Commission warned that Romania may not meet its budget deficit target and urged the government to take action to avoid the opening of an excessive deficit procedure.
(1 euro =4.6597 lei)