COMMISSION STAFF WORKING DOCUMENT Accompanying the document Recommendation for a COUNCIL RECOMMENDATION with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective in Romania
Date: 2017-11-22
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Romania, budget deficit, economic policy, economic reform, financial control, gross domestic product, multilateral surveillance, public finance, stability programme

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 22.11.2017  SWD(2017) 603 final  COMMISSION STAFF WORKING DOCUMENT Accompanying the document Recommendation for a  COUNCIL RECOMMENDATION with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective   in Romania {COM(2017) 802 final}  
 
 
COMMISSION STAFF WORKING DOCUMENT 

Accompanying the document 

Recommendation for a 

COUNCIL RECOMMENDATION 

with a view to correct the significant observed deviation from the adjustment path 
toward the medium-term budgetary objective 

in Romania 

1. 

INTRODUCTION 

Since 2013 Romania has been subject to the preventive arm of the Stability and Growth Pact, 
which  requires  sufficient  progress  towards  the  medium-term  budgetary  objective  (MTO). 
Romania is not subject to the debt rule as its general government debt remains below 60% of 
GDP.  

On 16 June 2017 the Council decided in accordance with Article 121(4) of the Treaty on the 
Functioning of the European Union ("TFEU") that a significant observed deviation from the 
MTO  occurred  in  Romania  in  2016.  In  view  of  the  established  significant  deviation,  the 
Council  on  16  June  2017  issued  a  recommendation  for  Romania  to  take  the  necessary 
measures to ensure that the nominal growth rate of net primary government expenditure1 does 
not exceed 3.3% in 2017, corresponding to an annual structural adjustment of 0.5% of GDP2. 
It  recommended  Romania  to  use  any  windfall  gains  for  deficit  reduction,  while  budgetary 
consolidation  measures  should  ensure  a  lasting  improvement  in  the  general  government 
structural  balance  in  a  growth-friendly  manner.  The  Council  established  a  deadline  of  15 
October  2017  for  Romania  to  report  on  action  taken  in  response  to  the  recommendation. 
Romanian  authorities  delivered  their  report  on  action  taken  in  response  to  Council 
Recommendation of 16 June 2017 (hereafter: "the report") within this deadline. Moreover, on 
26  and  27  September  2017  the  Commission  undertook  an  enhanced  surveillance  mission  in 
Romania for the purpose of on-site monitoring under the Article -11(2) of Council Regulation 
(EC) No 1466/97 and subsequently reported to the Council on 24 October 2017 and made its 
findings public. 

Section  2  of  this  document  presents  macroeconomic  developments  and  outlook  in  2017-18. 
Sections 3 and 4 present fiscal developments in 2017 and updated budgetary projections for 
2018  respectively.  Section  5  assesses  compliance  with  the  Council  Recommendation  of  16 
June  2017  in  2017,  while  Section  6  proposes  an  adjustment  path  for  2018.  Section  7 
concludes.  

1  

2  

Net  government  expenditure  is  comprised  of  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  four-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 
Council Recommendation of 16 June 2017 with a view to correcting the significant observed deviation 
from  the  adjustment  path  toward  the  medium-term  budgetary  objective  in  Romania  (OJ  C  216, 
6.7.2017, p. 1). 

1 

 
 
                                                 
2. 

MACROECONOMIC DEVELOPMENTS AND OUTLOOK 2017-2018 

Following 4.8 % in 2016, real GDP growth is projected to reach 5.7 % in 2017, a new post-
crisis peak. Private consumption has been the main contributor to growth in 2017, supported 
by  wage  hikes  both  in  the  public and  the  private  sectors,  indirect  tax cuts,  and  low  rates  of 
inflation. Investment remained subdued as a recovery in private investment, driven mainly by 
housing construction, could only partially compensate for a sharp drop in public investment. 
The  booming  private  consumption  also  drove  an  acceleration  of  imports  in  2017.  As  a 
consequence,  net  exports  worked  as  a  drag  on  real  GDP  growth,  despite  relatively  strong 
export growth.  

Looking ahead, private consumption is forecast to decelerate in 2018, as wage growth slows 
down  and  higher  rates  of  inflation  increasingly  weigh  on  real  disposable  income,  but  is 
expected  to  remain  the  main  driver  of  growth.  The  projected  strengthening  of  public 
investment on the back of a pick-up in the implementation of projects financed by EU funds is 
expected to only partially compensate for the deceleration of private consumption. Thus, real 
GDP growth is projected by the Commission to somewhat slow down to 4.4% in 2018.  

The Commission growth forecast for 2017 and 2018 has been revised upwards compared to 
the spring 2017 forecast. This mainly reflects the stronger than projected GDP growth in the 
first half of 2017, when real GDP increased by 5.8% y-o-y. 

2 

 
 
 
 
Table 1. Comparison of macroeconomic developments and forecasts 

3. 

GENERAL GOVERNMENT DEFICIT DEVELOPMENTS IN 2017 

On 26 and 27 September 2017 the Commission undertook an enhanced surveillance mission 
in  Romania  for  the  purpose  of  on-site  monitoring  under  the  Article  -11(2)  of  Council 
Regulation  (EC)  No  1466/97.  After  having  transmitted  its  provisional  findings  to  the 
Romanian authorities for comments, the Commission reported its findings to the Council on 
24  October  2017  and  made  its  findings  public.  The  Commission  report  finds  that  the 
Romanian  authorities  do  not  intend  to  act  upon  the  Council  Recommendation  of  16  June 
2017.  The  authorities  stated  that  their  target  for  2017  remains  a  headline  deficit  of  3%  of 
GDP. Given the positive and increasing output gap this would amount to a deterioration of the 
structural deficit in 2017, contrary to the Council Recommendation. 

In their report on action taken, the authorities maintain the general government deficit target 
from  the  2017  Convergence  programme  of  2.96%  of  GDP  in  2017,  close  to  the  outturn  in 
2016. The report does not contain projections of individual budgetary items or categories. The 
authorities provide a list of taken or planned discretionary measures, without providing their 

3 

2016CPPRCOMCPPRCOMReal GDP (% change)4.65.26.15.75.55.54.4Private consumption (% change)7.47.38.88.66.46.54.8Gross fixed capital formation (% change)-3.56.92.01.67.97.96.5Exports of goods and services (% change)8.36.89.68.36.36.57.3Imports of goods and services (% change)9.88.510.89.97.97.98.1Contributions to real GDP growth:- Final domestic demand4.46.36.36.16.26.24.9- Change in inventories0.9-0.30.40.30.00.00.0- Net exports-0.7-0.8-0.6-0.8-0.7-0.6-0.5Output gap1n.a.-0.1n.a.0.70.4n.a.1.1Employment (% change)-0.90.7n.a.0.70.9n.a.0.4Unemployment rate (%)5.95.75.05.35.54.85.1Labour productivity (% change)5.54.4n.a.4.94.5n.a.4.0HICP inflation (%)-1.11.2n.a.1.02.5n.a.2.9GDP deflator (% change)2.22.04.22.02.12.13.2Comp. of employees (per head, % change)10.95.8n.a.13.25.9n.a.10.9Net lending/borrowing vis-à-vis the rest of the world (% of GDP)-1.30.4n.a.-1.60.8n.a.-1.520172018Note:Convergence Programme 2017 (CP), Romanian Prognosis Commission's autumn forecast (PR), European Commission 2017 autumn forecast (COM)Sources:1In percent of potential GDP, with potential GDP growth recalculated by Commission services on the basis of the programme scenario using the commonly agreed methodology. 
 
 
 
estimated  impact.  Moreover,  the  list  only  includes  measures  with  a  positive  impact  on  the 
budget. Adopted or announced measures which will reduce revenues or increase expenditures 
were not included. The table below (Table 2) presents only measures listed in the report with 
a significant budgetary impact (defined as impact above 0.1% of GDP) in either 2017 or 2018. 
The estimates of the fiscal impact in the table come from the subsequent exchanges with the 
authorities, following the reception of the report. Based on these estimates, the only measure 
listed in the report with a significant budgetary impact in 2017 is an increase of excise duties 
for  energy  products  back  to  their  2016  level  (i.e.  a  reversal  of  a  previously  adopted  excise 
duties cut which entered into force in January 2017). 

Table 2. Discretionary fiscal measures listed in the report 

Revenues 

Increasing excise duties for energy products back to their 2016 
level as of October 2017 (i.e. reversing a previous cut which 
entered into force in January 2017) 
Payment of social contributions at the level of the minimum wage 
for part time employees earning less than the minimum wage 
Increasing the taxation base for companies for unemployed persons 
with disabilities from September 2017  
Making the contributions to the second pension pillar optional (no 
date nor details of the opt-out specified) 
Introducing a split-payment system in VAT, optional from October 
2017 and obligatory from January 2018 

Expenditures 

Autumn 
forecast 
2017 
Yes 

Yes 

Yes 

No 

No 

2017 

2018 

Impact on revenue (% 
GDP) 

+0.1% 

+0.3% 

+0.1% 

+0.1% 

+0.4% 

+0.5% 

Impact on expenditure 
(% GDP) 

Limiting the indexation of special pensions to inflation rate 
Note:  
The budgetary impact in the table as estimated by the national authorities. A positive sign implies that revenue / 
expenditure increases as a consequence of this measure. 

Yes 

-0.2% 

4 

 
 
 
 
 
 
 
 
 
 
 
 
 
Table  3.  Discretionary  revenue  measures  included  in  the  Commission  autumn  2017 
forecast (fiscal impact in % of GDP) 

Title 

2017 

2018 

Removal of 5 average wages cap from the tax base for social contributions 

+0.1% 

Increase of dividends from SOEs from 50% to 90% of profits 

+0.1% 

Increasing  excise  duties for energy products  back  to  their  2016  level  as  of 
October  2017  (i.e.  reversing  a  previous  cut  which  entered  into  force  in 
January 2017) 

+0.1% 

+0.3% 

Payment of social contributions at the level of the minimum wage for part 
time employees earning less than the minimum wage 

+0.1% 

Exemption of pensions income from health contributions 

Abolishment of special constructions tax 

PIT: increase of tax-free threshold for pension income  

Tax on microenterprises: rate cut, base up 

Standard VAT rate cut from 20% to 19% 

Cut of excise duties for energy products 

Social contributions shift on the employees 

PIT rate cut from 16% to 10% 

Note:  

-0.1% 

-0.1% 

-0.1% 

-0.2% 

-0.3% 

-0.4% 

0.9% 

-1.5% 

The  budgetary  impact  in  the  table  as  included  in  the  Commission  Autumn  2017  forecast.  A  positive  sign 
implies  that  revenue  increases  as  a  consequence  of  this  measure.  The  table  includes  measures  with  a  fiscal 
impact of at least 0.1%of GDP. 

Based  on  the  Commission  autumn  2017  forecast,  which  takes  into  account  the  measures 
described in the report from the authorities to the extent they are already enacted or credibly 
announced in sufficient detail, as well as information from all available sources, the general 
government deficit is projected to remain at 3% of GDP in 2017.  

Tax  cuts,  which  entered  into  force  at  the  beginning  of  the  year  (in  particular  a  cut  of  the 
standard VAT rate by 1 percentage point and cut of excise duties on fuel) have reduced tax 
revenues.  Their  impact  was  partially  mitigated  by  a  reversal  of  the  excise  duties  cut  from 
October  2017,  leading  to  an  overall  fall  of  indirect  tax  revenues  relative  to  GDP  by  0.8 
percentage points.compared to 2016. 

On  the  expenditure  side,  public  wages  and  social  benefits  were  considerably  increased  as 
compared  to  2016  (by  1.0  and  0.4  percentage  points  relative  to  GDP,  respectively).  At  the 
same  time,  public  investment  was  cut  significantly  in  the  September’s  budget  rectification 
raising further concerns regarding the composition of public expenditure, leading to an overall 
fall  by  0.6  percentage  points  relative  to  GDP  compared  to  2016.  Since  the  output  gap  has 
turned  positive  in  2017  a  general  government  deficit  that  remains  at  3%  of  GDP  implies  a 

5 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
further deterioration of the structural deficit in 2017 as opposed to the required reduction of 
0.5%  of  GDP.  This  reflects  a  clearly  expansionary  fiscal  policy.  The  composition  of  the 
budget and its adjustments in nominal and structural terms are presented in Table 3. 

Table 4. Composition of the budgetary adjustment 

4. 

UPDATED BUDGETARY PROJECTIONS FOR 2018 

In  the  report,  the  authorities  repeat  the  general  government  deficit  target  from  the  2017 
Convergence  Programme  of  2.9%  of  GDP  in  2018.  The  report  does  not  contain  a  detailed 
fiscal forecast for 2018. For the measures listed in the report with a positive fiscal impact in 
2018, please see Table 2 above. 

According to the Commission autumn 2017 forecast, the general government deficit is set to 
increase  to  3.9%  of  GDP  in  2018.  The  main  drivers  of  this  deterioration  are  a  projected 

6 

2016CPCOMCPCOMRevenue, of which:31.032.230.832.331.7- Taxes on production and imports11.311.010.511.010.8- Current taxes on income, wealth, etc.6.56.66.26.85.0- Social contributions8.18.78.88.710.1- Other (residual)5.15.95.25.85.7Expenditure, of which:34.035.133.835.235.5- Primary expenditure, of which:32.533.732.333.734.0Compensation of employees8.28.49.28.310.1Intermediate consumption5.35.15.05.05.0Social payments10.711.711.112.011.1Subsidies0.40.40.40.50.4Gross fixed capital formation3.64.33.04.03.5Other (residual)4.23.83.73.93.9- Interest expenditure1.51.41.51.51.6General government balance (GGB)-3.0-2.9-3.0-2.9-3.9Primary balance-1.5-1.6-1.6-1.4-2.3One-off and other temporary measures-0.40.00.00.00.0GGB excl. one-offs-2.6-2.9-3.0-2.9-3.9Output gap1-1.2-0.10.70.41.1Cyclically-adjusted balance1-2.6-2.9-3.3-3.0-4.3Structural balance (SB)2-2.2-2.9-3.3-3.0-4.3Structural primary balance2-0.7-1.5-1.8-1.5-2.71Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by Commission on the basis of the programme scenario using the commonly agreed methodology.2Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.Notes:(% of GDP)20172018Sources: Comission 2017 autumn forecast (COM), Convergence Programme 2017 (CP) 
 
 
 
decrease of the revenues from income taxes and an increase of expenditures on compensation 
of  public  employees.  The  unified  wage  law,  enacted  in  summer  2017,  is  set  to  increase  all 
public  wages  by  25%  in  January  2018  and  contains  additional  increases  for  doctors  and 
teachers in March 2018. As a result, the expenditures on compensation of public employees 
are  projected  to  increase  by  0.9  percentage  points  relative  to  GDP.  Moreover,  the  personal 
income tax (PIT) rate will be cut from 16% to 10% (with a fiscal impact of -1.5 percentage 
points  of  GDP).  These  measures  are  to  be  partially  compensated  by  an  announced  shift  of 
social security contributions from the current 22.75% for employers and 16.5% for employees 
to  2.25%  (so-called  solidarity  contribution)  and  35%  respectively,  which  is  set  to  have  a 
positive  impact  of  0.9  percentage  points  of  GDP  on  revenues  from  social  security 
contributions.  None  of  these  measures  are listed  in  the  report.  However,  they  were  publicly 
announced by the authorities and thus taken into account in the Commission forecast. These 
changes  to  social  contributions  and  to  the  PIT  were  subsequently  enacted  by  an  emergency 
ordinance amending the fiscal code, which was adopted by the government on 8 November. 
Therefore, the Romanian authorities are set to continue an expansionary fiscal policy in 2018.  

In the report, the authorities state their intention to make the second pension pillar optional, 
although without giving the details of this opt-out. Due to the lack of sufficient information, 
this  opt-out  is  not  taken  into  account  in  the  Commission's  autumn  2017  forecast.  After  the 
closing  date  of  the  Commission  forecast  the  government  adopted  an  emergency  ordinance 
cutting the rate of social contributions transferred to the second pension pillar from the current 
5.1% to 3.7% in 2018, without reference to the mandatory character of the contribution to this 
pension pillar as in the report. Since the second pension pillar is classified outside the general 
government, such a cut would have a positive impact on the general government revenues and 
thus on the general government balance of around 0.2-0.3% of GDP in 2018. 

5. 

COMPLIANCE WITH THE COUNCIL RECOMMENDATION FOR 2017 

On  16  June  2017  the  Council  recommended  Romania  to  take  the  necessary  measures  to 
ensure that the nominal growth rate of net primary government expenditure does not exceed 
3.3% in 2017, corresponding to an annual structural adjustment of 0.5% of GDP.  

In  2017,  based  on  the  Commission  autumn  2017  forecast,  the  corresponding  growth  of 
government  expenditure,  net  of  discretionary  revenue  measures  and  one-offs  amounted  to 
4.9%, well above the expenditure benchmark. The structural balance is set to deteriorate by 
1.1 %  of GDP, reaching a deficit of 3.3%  in  2017, pointing to the opposite direction of the 
recommended structural improvement of 0.5% of GDP. This deterioration compared to 2016 
was  driven  by  cuts  to  indirect  taxes  (in  particular  to  VAT  and  excise  duties)  which  entered 
into  force  at  the  beginning  of  the  year  and  increases  to  public  wages  and  social  benefits 
introduced through the year.  

Since  the  Council  Recommendation  of  16  June,  the  increase  of  excise  duties  for  energy 
products back to their 2016 level as well as a cut in public investment in September’s budget 
rectification  had  a  positive  impact  on  the  public  deficit.  Their  effect  was  largely  offset  by 
increases to public wages contained in the budget rectification. 

7 

 
 
 
 
 
 
Table  5.  Romania  under  the  preventive  arm  of  the  SGP,  as  compared  to  the  Council 
Recommendation of 16 June 2017 

8 

(% of GDP)2016Medium-term objective (MTO)-1.0Structural balance2 (COM)-2.2Structural balance based on freezing (COM)-2.5Position vis-a -vis the MTO3At or above the MTORequired adjustment40.0Required adjustment corrected5-0.5Change in structural balance6-2.1-1.1One-year deviation from the required adjustment7-1.6-1.6Two-year average deviation from the required adjustment7-0.6-1.6Applicable reference rate84.5One-year deviation adjusted for one-offs9-2.0-2.6Two-year average deviation adjusted for one-offs9-1.1-2.3PER MEMORIAM: One-year deviation10-2.6-2.3PER MEMORIAM: Two-year average deviation10-2.6-2.5Conclusion over one yearSignificant deviationSignificant deviationConclusion over two yearsSignificant deviationSignificant deviation10 Deviation of the growth rate of public expenditure net of discretionary revenue measures and revenue increases mandated by law from the applicable reference rate in terms of the effect on the structural balance. The expenditure aggregate used for the expenditure benchmark is obtained following the commonly agreed methodology. A negative sign implies that expenditure growth exceeds the applicable reference rate. 9 Deviation of the growth rate of public expenditure net of discretionary revenue measures, revenue increases mandated by law and one-offs from the applicable reference rate in terms of the effect on the structural balance. The expenditure aggregate used for the expenditure benchmark is obtained following the commonly agreed methodology. A negative sign implies that expenditure growth exceeds the applicable reference rate. 0.5Notes1 The most favourable level of the structural balance, measured as a percentage of GDP reached at the end of year t-1, between  spring forecast (t-1) and the latest forecast, determines whether there is a need to adjust towards the MTO or not in year t.  A margin of 0.25 percentage points (p.p.) is  allowed in order to be evaluated as having reached the MTO.8  Reference medium-term rate of potential GDP growth. The (standard) reference rate applies from year t+1, if the country has reached its MTO in year t. A corrected rate applies as long as the country is adjusting towards its MTO, including in year t. 2  Structural balance = cyclically-adjusted government balance excluding one-off measures.3 Based on the relevant structural balance at year t-1.4 Based on the position vis-à-vis the MTO, the cyclical position and the debt level (See European Commission:Vade mecum on the Stability and Growth Pact, page 38.).5  Required adjustment corrected for the clauses, the possible margin to the MTO and the allowed deviation in case of overachievers.6 Change in the structural balance compared to year t-1. Ex post assessment (for 2016) was carried out on the basis of Commission 2017 spring forecast. 7  The difference of the change in the structural balance and the corrected required adjustment. 0.5Expenditure benchmark pillar1.0ConclusionSource: Commission 2017 autumn forecast, Commission calculations2017Initial position1-3.3-3.2Not at MTOStructural balance pillar-1.0 
 
 
6. 

PROPOSED ADJUSTMENT PATH FOR 2018 

On 11 July  2017 the Council recommended  Romania to  pursue a substantial  fiscal effort in 
line with the requirements of the preventive arm of the Stability and Growth Pact, in order to 
further adjust  towards its medium-term budgetary objective of a structural deficit of 1 % of 
GDP. According to the commonly agreed adjustment matrix under the Stability and Growth 
Pact,  that  adjustment  translated  into  a  requirement  of  a  nominal  growth  rate  of  net  primary 
government  expenditure  not  exceeding  4.3%  in  2018.  It  would  correspond  to  a  structural 
adjustment of 0.5 % of GDP. 

Based on the 2017 autumn forecast, Romania's structural balance in 2017 is estimated to be at 
-3.3% of GDP, away from its MTO of -1% of GDP. Romania will remain in normal economic 
times  (as its projected output gap of 0.7%  in  2017 and 1.2%  in  2018 is between  -1.5%  and 
1.5%  of  potential  GDP).  General  government  debt  is  set  to  remain  below  the  60%  of  GDP 
threshold.  The  required  structural  effort  prescribed  by  Regulation  (EC)  No  1466/97  and  the 
adjustment  matrix3,  which  factors  in  the  prevailing  economic  circumstances  and  possible 
sustainability concerns, amounts to 0.5% of GDP, in line with what was recommended by the 
Council on 11 July 2017. 

Moreover,  an  additional  effort  necessary  to  bring  Romania  back  on  an  appropriate 
consolidation path following the slippages in  2016 and 2017 can  complement the  minimum 
SGP-required  adjustment.  Romania's  structural  deficit  is  projected  by  the  Commission  to 
increase by 1.1% of GDP in 2017, while the Council Recommendation asked for a structural 
decrease  of  at  least  0.5%  of  GDP.  An  additional  effort  of  0.3%  of  GDP  seems  appropriate 
given the magnitude of the observed significant deviation from the recommended adjustment 
path towards the MTO and it will accelerate adjustment back towards the MTO. The proposed 
adjustment  would  contribute  to  a  strengthening  of  macroeconomic  fundamentals.  Given  the 
current strong cyclical position of the economy, GDP growth would remain robust despite the 
fiscal correction, particularly if the adjustment is carried out in a growth friendly manner. 

Based on the Commission forecast, the above-mentioned 0.8% of GDP structural adjustment 
target  is  consistent  with  a  nominal  growth  rate  of  net  primary  government  expenditure  of 
3.3% in 2018, compared to the growth rate of 5.8% projected by the Commission.  

The structural improvement of 0.8% of GDP in 2018 translates into a need to adopt measures 
of a total yield of 1.8% of GDP in structural terms as compared to the current 2018 baseline 
from  the  Commission  2017  autumn  forecast  given  projected  further  deterioration  of  the 
structural balance in 2018. 

Additionally, Romania is projected to remain at the 3% of GDP deficit reference value of the 
Treaty  in  2017  but  is  forecast  to  breach  it  by  a  significant  margin  in  2018  based  on  the 
Commission  autumn  2017  forecast.  The  required  structural  adjustment  of  0.8%  of  GDP 
compared to the projected outcome for 2017 would also ensure that Romania respects the 3% 
of GDP general government deficit threshold in 2018 with a margin, which is crucial in view 
of the existing risks and the forecast for significant breach in 2018. 

3  “Commonly  agreed  position  on  Flexibility  within  the  SGP”,  formally  endorsed  by  ECOFIN  Council  on  12 
February 2016, available at: http://data.consilium.europa.eu/doc/document/ST-14345-2015-INIT/en/pdf 

9 

 
 
 
 
                                                 
 
Table 6. Comparison of key indicators under unchanged policy and under the new 
recommended adjustment path  

Structural balance (% of 
GDP) 

Nominal growth rate of net 
primary government 
expenditure 

2017 

-3.3 

-3.3 

2018 

-4.3 

-2.5 

2017 

+4.9 

+4.9 

2018 

+5.8 

+3.3 

Autumn 2017 forecast 

New recommended 
adjustment path  

* approximated by transforming the structural deficit target into headline deficit using the 2018 output gap from 
the Commission autumn 2017 forecast 

7. 

CONCLUSION 

Romania has not delivered the recommended improvement in the structural balance nor has it 
contained the net primary government expenditure in 2017. 

An improvement in Romania's structural balance by 0.8% of GDP in 2018 relative to the 2017 
outturn would put Romania on an adjustment path towards the MTO. Such an improvement is 
consistent with the nominal growth rate of net primary government expenditure not exceeding 
3.3% in 2018. This translates into a need to adopt measures of a total structural yield of 1.8% 
of GDP compared to the current 2018 baseline from the Commission 2017 autumn forecast. 
Such an adjustment also seems appropriate to ensure that Romania respects the 3% of GDP 
general government deficit threshold in 2018 with a margin.  

10