COMMUNICATION FROM THE COMMISSION TO THE COUNCIL Fiscal situation in Romania
Date: 2020-11-18
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Romania, budget deficit, coronavirus disease, economic policy, economic reform, epidemic, gross domestic product, macroeconomics, public debt, public finance, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 18.11.2020  COM(2020) 752 final  COMMUNICATION FROM THE COMMISSION TO THE COUNCIL Fiscal situation in Romania  
 
 
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Fiscal situation in ROMANIA 

1.  INTRODUCTION 

Based on a recommendation from the Commission of 4 March 20201, the Council adopted on 
3 April 2020 a Recommendation under Article 126(7) of the Treaty on the Functioning of the 
European  Union  (‘TFEU’).  The  Council  recommended  Romania  to  bring  an  end  to  the 
situation  of  an  excessive  government  deficit  (‘the  Recommendation’)  by  2022.2  That 
Recommendation  was  adopted  on  the  basis  of  a  planned  deficit  of  3.8%  of  gross  domestic 
product  (GDP)  in  2019.  Such  deficit  is  above  and  not  close  to  the  3%  of  GDP  deficit 
reference value established by Article 1 of the protocol No 12 on excessive deficit procedure. 
The  excess  over  that  reference  value  in  2019  was  also  not  exceptional.  According  to 
subsequently published Eurostat-validated data, the deficit in 2019 amounted to 4.4% of GDP.   

At the time the Council adopted that Recommendation, the COVID-19 pandemic was already 
severely  affecting  Europe.  However,  the  Recommendation  noted  that  the  excessive  deficit 
position  was  the  result  of  policy  decisions  adopted  by  Romania  before  the  COVID-19 
outbreak. Those decisions included in particular major pension increases forecast to lead to a 
very large and persistent deterioration in the budget balance.  

According  to  the  Recommendation,  which  was  reiterated  in  the  2020  country-specific 
recommendation  No 1  addressed  to  Romania3,  Romania  should  reach  a  headline  general 
government deficit target of 2.8% of GDP by 2022.4 That target was largely consistent with 
Romania’s Fiscal Strategy 2020-2022, adopted by Parliament and promulgated into law on 18 
December 2019. The Recommendation was based on the Commission 2020 winter forecast, 
published on 13 February  2020, extended with  fiscal  variables until  2022. That  forecast  did 
not include the impact of the COVID-19 outbreak. 

On  20  March  2020,  the  Commission  published  a  Communication  on  the  activation  of  the 
general  escape  clause  of  the  Stability  and  Growth  Pact.5  In  that  Communication,  the 
Commission  stated  that  the  conditions  to  activate  the  general  escape  clause  had  been  met. 
That view was endorsed by the EU Ministers of Finance on 23 March 2020. The clause, as set 
out  in  Articles 5(1), 6(3), 9(1)  and 10(3) of Regulation  (EC) 1466/97  and Articles 3(5)  and 
5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of 
a  severe  economic  downturn  in  the  EU  or  the  euro  area  as  a  whole,  by  allowing  Member 

1  Recommendation  for  a  Council  Recommendation  with  a  view  to  bringing  an  end  to  the  situation  of  an 
excessive government deficit in Romania (COM/2020/91 final). 
2  Council  Recommendation  of  3  April  2020  with  a  view  to  bringing  an  end  to  the  situation  of  an  excessive 
government deficit in Romania (OJ C 116, 8.4.2020). 
3 Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Romania and delivering 
a Council opinion on the 2020 Convergence Programme of Romania (OJ C 282, 26.8.2020, p. 149–156) . 
4 According to the recommended adjustment path, Romania should reach a headline general government deficit 
target  of  3.6%  of  GDP  in  2020,  3.4%  of  GDP  in  2021  and  2.8%  of  GDP  in  2022,  consistent  with  a  nominal 
growth  rate  of  net  primary  government  expenditure  of  8.2%  in  2020,  5.5%  in  2021  and  5.5%  in  2022, 
corresponding to an annual structural adjustment of 0.5% of GDP in 2020, 0.8% of GDP in 2021 and 0.8% of 
GDP in 2022. 
5 Communication from the Commission to the Council on the activation of the general escape clause of the 
Stability and Growth Pact (COM/2020/123 final). 

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States  to  undertake  budgetary  measures  to  deal  adequately  with  such  a  situation,  within  the 
preventive and corrective procedures of the Stability and Growth Pact. 

On  20  May  2020,  the  Commission  adopted  a  Communication  on  the  European  Semester: 
Country-specific  recommendations.6  In  that  Communication,  the  Commission  provided  an 
update  on  fiscal  surveillance  under  the  Stability  and  Growth  Pact  in  the  context  of  the 
activation  of  the  general  escape  clause.  The  Commission  highlighted  the  gravity  of  the 
economic  downturn  resulting  from  the  COVID-19  outbreak,  which  had  resulted  in 
exceptional  uncertainty,  making  it  particularly  difficult  to  design  a  credible  path  for  fiscal 
policy.  The  Commission  considered  that  at  that  juncture  a  decision  on  whether  to  place 
additional  Member  States  under  excessive  deficit  procedure  (EDP)  pursuant  to  Article  126 
TFEU should not be taken. 

On  15  September  2020,  Romania  submitted  its  report  on  action  taken  in  response  to  the 
Recommendation. That report points to a major deterioration of public finances during 2020, 
mainly due to the COVID-19 pandemic (see Section 3 and 4). 

In  a  letter  by  Executive  Vice-President  Dombrovskis  and  Commissioner  Gentiloni  to  the 
Romanian  Minister  of  Public  Finance  Cîtu  on  19  September  2020,  the  Commission 
highlighted the prevailing high uncertainty about both the development of the pandemic and 
its  socio-economic  consequences.  Therefore,  it  concluded  that  the  general  escape  clause 
should  remain  active  in  2021,  as  also  indicated  in  the  Annual  Sustainable  Growth  Strategy 
2021.7  In  spring  2021,  taking  into  account  updated  macroeconomic  projections,  the 
Commission would reassess the situation. 

The general escape clause does not suspend the procedures of the Stability and Growth Pact. 
However, its activation  has consequences  for the corrective  arm of the  Pact.  Article 5(1) of 
Regulation (EC) 1477/97 states: 

“In  the  case  of  a  severe  economic  downturn  in  the  euro  area  or  in  the  Union  as  a 
whole,  the  Council  may also  decide,  on  a  recommendation  from  the  Commission,  to 
adopt  a revised recommendation under Article 126(7) TFEU provided that  this does 
not endanger fiscal sustainability in the medium term.” 

The  continued  activation  of  the  general  escape  clause,  therefore,  allows  the  Commission  to 
propose  a  revised  Article  126(7)  recommendation,  provided  that  fiscal  sustainability  in  the 
medium term is not endangered, even in the absence of effective action by the Member State 
in response to an Article 126(7) recommendation.  

In the light of the continued exceptional uncertainty created by the COVID-19 pandemic and 
its  extraordinary  macroeconomic  and  fiscal  impact,  the  Commission  considers  that  no 
decision on further steps in the Romania’s EDP can be taken at this juncture.  

This exceptional uncertainty, including for designing a credible path for fiscal policy, does not 
allow  the  Commission  to  put  forward  a  Recommendation  for  a  Council  recommendation 
under article 126(7) at this stage.  

6  Communication  from  the  Commission  to  the  European  Parliament,  the  European  Council,  the  Council,  the 
European Central Bank, the European Economic and Social Committee, the Committee of the Regions and  the 
European Investment Bank 2020 European Semester: Country-specific recommendations (COM/2020/500 final). 
7  Communication  from  the  Commission  to  the  European  Parliament,  the  European  Council,  the  Council,  the 
European Central Bank, the European Economic  and Social Committee, the Committee of the Regions and the 
European Investment Bank: Annual Sustainable Growth Strategy 2021 (COM/2020/575 final). 

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The Commission will reassess Romania’s budgetary situation based on the 2020 outturn data, 
2021  budget  and  the  Commission  2021  spring  forecast  in  spring  2021.  If  appropriate,  the 
Commission will propose new steps under the excessive deficit procedure, taking into account 
the  continued  application  of  the  general  escape  clause  of  the  Stability  and  Growth  Pact  in 
2021. 

Sound economic governance, such as effective action in the context of an EDP, and overall 
sound  macroeconomic  policies  are  a  prerequisite  for  ensuring  an  environment  conducive  to 
productive public investment and effective use of the EU Funds, including in the context of 
the Recovery and Resilience Facility (RRF). Based on the proposals made by the Commission 
(currently  in  the  legislative  process),  sound  economic  governance  is  necessary  for  the 
seamless provision of EU funds. It is also recalled that the assessment criteria set out in the 
draft  RRF  Regulation  require  the  recovery  and  resilience  plan  of  Romania  to  contribute  to 
effectively  address  the  relevant  challenges  identified  in  the  relevant  country-specific 
recommendations. 

2.  MACROECONOMIC DEVELOPMENTS AND OUTLOOK 

Romania’s economy grew on average by 5% per year in 2016-2019, with private consumption 
as  the  main  growth  driver.  Investment  was  volatile  during  this  period,  while  net  exports 
contributed  negatively  to  GDP  growth  as  imports  grew  faster  than  exports.  This  robust 
economic  growth  was,  however,  accompanied  by  emerging  macroeconomic  imbalances, 
notably  in  the  form  of  high  and  growing  current  account  and  budgetary  deficits,  fuelled 
mainly by large wage increases and several tax cuts. The budget deficit increased from 2.6% 
of GDP in 2016 to 4.4% of GDP in 2019 and was forecast to rise steeply during the following 
years (see Table 1) due to a number of expansionary fiscal policy decisions adopted in recent 
years (see Section 3). The current account moved gradually from a nearly balanced position in 
2014 to a deficit of 4.7% of GDP in 2019. Romania’s Net  International Investment Position 
(NIIP)  as a percentage of GDP has been declining steadily  since 2013, supported by strong 
economic growth, and stabilised at around -44% of GDP at the end of 2019. 

In the first half of 2020, Romania’s GDP contracted by 4.5% year-on-year, driven mainly by a 
sharp  fall  in  output  in  the  second  quarter  due  to  the  country-wide  lockdown  following  the 
COVID-19  outbreak.  Restrictive  measures  adopted  to  fight  the  pandemic  had  a  negative 
impact  on  consumer  spending  while  the  disruption  of  international  supply  chains  and  weak 
external  demand  slowed  production  and  exports.  Investment  proved  more  resilient,  as 
construction activity was largely unaffected by containment measures. Activity rebounded in 
the  third  quarter  but  the  resurgence  of  COVID-19  cases  that  began  accelerating  in  end-
September,  as  well  as  the  reintroduction  of  associated  restrictions,  cloud  the  near-term 
economic outlook.  

In the Commission 2020 autumn forecast, real GDP is projected to contract by around 5¼% in 
2020 and to rebound by around 3¼% in 2021 and 3¾% in 2022, when it will recoup its pre-
crisis  level.  Private  consumption  is  expected  to  recover  gradually,  in  line  with  the  eventual 
easing  of  social  distancing  measures,  in  2021  and  2022.  Investment  is  also  projected  to 
rebound, albeit in a somewhat muted manner due to persistent uncertainty. At the same time, 
net exports are expected to contribute negatively to growth over the forecast horizon, leading 
to a slight increase in the current account deficit.  

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The  crisis  also  has  a  strong  impact  on  potential  growth,  although  estimates  are  subject  to  a 
significant level of uncertainty. The Commission estimates potential GDP growth to decline 
sharply  from  4.1%  in  2018  to  2¼%  in  2022.  The  output  gap,  estimated  based  on  the 
commonly agreed methodology, had increased to 2.4% of potential GDP in 2019 from 2% in 
2018.  It  is  projected  to  turn  strongly  negative  in  2020,  before  diminishing  gradually  as  of 
2021, but remaining negative throughout the forecast horizon. 

Table 1: Comparison of macroeconomic developments and forecasts 

2019 

2020 

2021 

2022 

Real GDP (% change) 

Contributions to real GDP growth: 

- Final domestic demand 

- Change in inventories 

- Net exports 

Output gap (% of potential GDP) 

Employment (% change) 

Unemployment rate (%) 

Labour productivity (% change) 

HICP inflation (%) 

GDP deflator (% change) 

Comp. of employees (per head, % change) 

General government balance (% of GDP) 

General government debt (% of GDP) 

Outturn 
4.2 

COM 
-5.2 

-4.0 
-0.6 

-0.6 

-5.3 

-2.8 

5.9 

-2.2 

2.5 

2.8 

8.2 

8.3 
-2.8 

-1.3 

2.4 

0.1 

3.9 

3.7 

3.9 

6.9 

9.5 

-4.4 

35.3 

RO 
-3.8 

-3.8 
-1.5 

-0.8 

n/a 

-1.8 

5.1 

n/a 

n/a 

3.7 

n/a 

COM 
3.3 

COM 
3.8 

4.0 
0.3 

-1.0 

-4.4 

0.4 

6.2 

3.1 

2.5 

2.9 

4.6 

5.0 
0.0 

-1.2 

-3.0 

1.4 

5.1 

2.5 

2.4 

2.9 

4.0 

-10.3 

46.7 

-8.6 

 43.6 

-11.3 

54.6 

-12.5 

63.6 

Source:  Commission  2020  autumn  forecast  (COM),  2020  Budget  (August  amendment)  and  the  autumn 
projection of the National Commission for Strategy and Prognosis (RO) 

The growth outlook is subject to a very high degree of uncertainty. The shape of the recovery 
will  depend  to  a  large  extent  on  the  duration  of  the  COVID-19  crisis,  on  the  speed  of  the 
recovery in Romania’s main trading partners and on the relative normalisation of global and 
regional supply chains. Prolonged uncertainty related to the future direction of public policies, 
in  particular  to  the  impact  of  some  expansionary  fiscal  policy  decisions  could  reduce 
confidence and hamper credit flows, negatively affecting investment and growth. At the same 
time, the potentially large future inflows of grants and loans from the RRF, which should be 
used to finance productive investments and stimulate reforms, represent an upside risk to the 
forecast.  

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3.  BUDGETARY DEVELOPMENTS AND OUTLOOK 

According  to  the  notification  of  14  October  20208,  validated  by  Eurostat,  the  general 
government deficit in Romania was 4.4% of GDP in 2019, while debt stood at 35.3% of GDP. 
The  Commission  2020  autumn  forecast  projects  a  general  government  deficit  of  around 
10¼% in 2020, 11¼% in 2021 and 12½% in 2022 under a no-policy change assumption. The 
structural deficit, which was around 5% of GDP in 2019, is expected to deteriorate by 3.6 pps. 
of GDP in 2020, 1.4 pps. of GDP in 2021, and 1.6 pps. of GDP in 2022.  

These large and growing budget deficits partly result from the combined effect of the severe 
economic downturn, and the measures to combat the COVID-19 pandemic and its economic 
and social consequences. These include additional spending on employment support schemes 
and support to the health sector, as well as some tax incentives. The total cost of COVID-19 
related support measures is 1.3% of GDP, out of which 0.4 pps. is financed by EU funds (see 
Table 2  below).  In  the  absence  of  a  budget  for  2021  (given  also  the  forthcoming  general 
elections,  expected  on  6  December),  the  Commission  2020  autumn  forecast  assumes  the 
expiry of the employment support measures and wages bonuses in 2021. 

However,  the  large  and  growing  projected  deficits  are  mainly  driven  by  pre-existing 
expansionary measures, as evidenced by the sizeable structural deficit in 2019. This notably 
includes  significant  increases  in  social  and  other  expenditure  that  were  adopted  before  the 
pandemic and are thus unrelated to it. More precisely, expenditure on old-age pensions is set 
to rise considerably, driven by the full-year effect of a 15% pension increase that came into 
effect in September 2019 and a further increase of 40% from September 2020. Consequently, 
expenditure  on  old-age  pensions  is  projected  by  the  Commission  to  increase  by  1.9  pps.  of 
GDP  in  2020.  Pension  increases  alone  will  also  contribute  to  a  deterioration  in  the  budget 
deficit by 2.2 pps. of GDP in 2021 and a further 1.1 pps. of GDP in 2022. The parliament also 
doubled the child allowance from February 2020, with an annualised budgetary cost of 0.6% 
of  GDP.  The  reason  for  this  budgetary  impact  is  that,  in  both  cases,  the  legislators  did  not 
provided for a source of financing of the measures. 

On the revenue side, the authorities enacted in December 2019 some tax changes, including 
the reduction of excise duties on fuel and a lowering of social security contributions on part-
time workers with an overall estimated revenue loss of 0.3% of GDP in 2020. Tax revenues 
are also set to be negatively affected by the recession and some tax incentives as part of the 
COVID-19 support measures (0.1% of GDP). 

The general government deficit for 2021 and 2022 could turn out lower than expected in the 
Commission  2020  autumn  forecast  as  the  government  has  proposed  to  reduce  the  planned 
increases  in  pensions  and  child  allowances.  The  related  amendments,  however,  have  been 
rejected by the Parliament, and the government has challenged the parliamentary decisions at 
the  Constitutional  Court,  whose  final  decisions  are  pending  (see  also  Section 4).  The 
Commission  2020  autumn  forecast,  in  line  with  the  standard  no-policy-change  assumption, 
takes  account  of  the  parliamentary  vote.  For  2020  and  for  2021  onwards,  therefore,  it 
incorporates the increases mandated by the pension law currently in force. The forecast does 
not  include  any  expenditure  related  to  the  RRF,  as  the  government  has  not  yet  indicated 
expenditure to be financed under the RRF in 2021. The evolution of the deficit in 2021 could 

8  Pursuant  to  Regulation  (EC)  No  479/2009  as  amended  by  Council  Regulation  (EU)  No  679/2010  and  by 
Commission Regulation (EU) No 220/2014, Member States have to report to the Commission, twice a year, their 
planned and actual government deficit and debt levels. The most recent notification of Romania can be found at: 
https://ec.europa.eu/eurostat/web/government-finance-statistics/excessive-deficit-procedure/edp-notification-
tables 

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also turn out to be more favourable than forecast as a result of higher economic growth from 
the swift implementation of measures financed by the RRF. 

Table 2: Measures to address COVID-19 pandemic 

Measure 

Law 

Budgetary impact (% 
of GDP) 

2020 

2021 

2022 

Revenue9 
Additional EU funds for COVID measures 
CIT: bonus for payment in time and HORECA exemption  
Expenditure 
Bonuses to health workers 
Emergency health spending and medical equipment 
Technical unemployment benefits for employees and other categories 
Subsidy for employees returning from technical unemployment 
(41.5%) 
Short-term work scheme and other employment support measures 
Subsidised interest for SMEs (IMM INVEST) 

Total impact 

several laws 

OUG 30/2020 

OUG 92/2020 
OUG 132/2020 

Note: budgetary impact as included in the Commission 2020 autumn forecast 

0,4 
-0,1 

0,1 
0,3 
0,5 

0,2 
0,1 
0,02 
1,05 

0,1 

0,03 
0,1 

0,0 

In order to assess medium-term sustainability risks, the Commission has conducted an ad-hoc 
debt sustainability assessment based on its standard approach. Due to a high primary deficit 
and relatively high interest rates compared to other sovereigns, the debt-to-GDP ratio is set on 
a steep upward path. Under a no-policy-change scenario, debt is projected by the Commission 
to exceed 60% in 2022 and go beyond 100% of GDP in 2027, remaining above that level until 
the  end  of  the  projection  period  in  2031.10  Based  on  the  Commission’s  assessment,  overall 
risks to debt sustainability appear high over the medium term.11 This risk level indicates that 
there  are  significant  fiscal  vulnerabilities  that  need  to  be  addressed  by  appropriate  policy 
measures.  This  risk  assessment  will  be  updated  and  further  complemented,  when  the 
Commission reassesses Romania’s budgetary situation in spring 2021. At this stage, the debt 
projections  are  also  subject  to  a  much  greater  level  of  uncertainty  than  usual.  If  the  lower 
increases  in  pensions  and  child  allowance  proposed  by  the  government  for  2020  were 
adopted, this would mitigate expenditure in the short term but would not fundamentally affect 
the  longer  term  risks  to  debt  sustainability  in  the  absence  of  further  measures  for  2021  and 
beyond.  

9 The authorities also adopted several tax measures (tax deferrals) that have an impact on cash budget execution 
but which are projected not to have an impact on general government deficit in accrual terms. 
10  In  this  scenario,  it  is  assumed  that  the  structural  primary  balance  would  be  progressively  adjusted  over  the 
projection period to converge back to its pre-crisis forecasted level (i.e. the level forecasted by the Commission 
services  in  the  autumn  forecast  2019  for  the  year  2021),  hence  presupposing  a  progressive  unwinding  of  the 
extraordinary negative impact of the COVID-19 crisis on public finances. Other assumptions are in line with the 
Commission standard DSA approach (see Debt Sustainability Monitor 2019). 
11 This assessment includes the consideration of additional  stress test scenarios, as defined in the Commission 
standard DSA approach (see Debt Sustainability Monitor 2019). 

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4.  MEASURES TAKEN SINCE THE EDP RECOMMENDATION 

On 15 September 2020, the Romanian authorities sent a report on action taken in response to 
the Article 126(7) Recommendation. That report presents the fiscal targets and measures from 
the draft 2020 budget amendment of August 2020. The new targets incorporate the measures 
that  the  government  has  taken  in  order  to  address  the  consequences  of  the  COVID-19 
outbreak  on  the  health  system  and  the  economy,  at  a  total  cost  of  around  1%  of  GDP 
(Table 2).  The  report  does  not  provide  any  details  on  the  medium-term  fiscal  targets  and 
measures  of  the  government,  as  the  Romanian  authorities  have  not  yet  presented  the  2021 
draft budget or the 2021-2023 fiscal strategy. 

For  2020,  the  authorities  target  a  general  government  headline  deficit  of  8.6%  of  GDP  and 
debt of 43.6% of GDP, which is consistent with the latest budget amendment adopted on 14 
August 2020, which revised the 2020 deficit target upwards from 3.6% of GDP in the original 
2020  budget.  The  planned  structural  deficit,  based  on  the  authorities’  own  calculations,  is 
5.8%  of  potential  GDP.  Those  budgetary  targets  are  based  on  an  expected  fall  in  real  GDP 
of -3.8% in 2020, significantly smaller than the -5.2% fall expected in the Commission 2020 
autumn  forecast;  they  also  incorporate  the  impact  of  the  emergency  measures  against  the 
impact of COVID-19 pandemic taken until October 2020.  

Through  its  August  budget  amendment,  the  government  attempted  to  limit  the  fiscal 
deterioration  in  2020  by  limiting  the  planned  increases  in  social  expenditures  and  in  public 
wage. More precisely, the government proposed an increase in old-age pensions of 14% from 
September 2020, instead of the originally planned increase of 40%. Given that the amendment 
refers only to 2020, based on the existing legislation, pensions would still increase by at least 
30% from September 2021. The government also proposed to increase the child allowance by 
19%  as  of  August  2020,  instead  of  an  immediate  doubling  in  February  2020,  followed  by 
increases  twice  a  year  until  it  doubles  by  July  2022.  The  government  has  also  attempted  to 
postpone the wage increases of education staff from September 2020 to September 2021.12 If 
implemented, these revisions would have reduced the 2020 expenditures by 1.3 pps. of GDP 
compared  to  the  Commission  2020  autumn  forecast.  The  Parliament,  however,  rejected  the 
government proposals and the government has challenged the parliamentary decisions at the 
Constitutional Court, whose final decisions are pending. 

An  assessment  of  Romania’s  budgetary  decisions  since  April  2020  in  response  to  the 
Recommendation  will  have  to  take  into  account  the  deterioration  of  the  macroeconomic 
outlook and the impact  of the  emergency  fiscal  measures to  deal with  the pandemic and its 
economic  and  social  consequences,  as  well  as  any  other  measures  or  actions  by  the 
authorities. According to the Commission 2020 autumn forecast, real GDP growth in 2020 is 
now expected to be 9 pps. lower than in the baseline scenario underlying the Article 126(7) 
Recommendation  of  April  2020,  which  was  based  on  the  Commission  2020  winter  forecast 
extended with fiscal variables until 2022. The headline deficit for 2020 is now expected to be 
around -10¼% of GDP, compared to -4.9% of GDP in the baseline scenario (Table 3).  

In  the  Commission  2020  winter  forecast  extended  with  fiscal  variables  until  2022  (baseline 
scenario),  the  impact  of  the  COVID-19  pandemic  was  not  taken  into  account  and  the 
structural balance was expected to deteriorate by 1 pp. of (potential) GDP in the absence of 

12 According to a previous decision of the Romanian authorities, wages of educational staff would increase as of 
1 September 2021 in order to reach the level provided for in the unified wage grade for 2022. The impact of this 
increase was estimated at 0.05% of GDP in 2020. 

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any  adjustment  effort  in  2020  (Table 3).  In  the  Commission  2020  autumn  forecast,  the 
expected deterioration of the structural balance is 3.6 pps. of GDP in 2020, i.e. by 2.6 pp more 
than in the winter forecast. Around 1 pp. of GDP of the structural deficit deterioration in 2020 
is due to COVID-19 emergency measures, enacted after the cut-off date of the winter forecast. 
Moreover, the 2020 autumn forecast assumes an additional 0.4 pps. of GDP higher spending 
on  child  allowance  compared  to  the  winter  forecast,  as  it  assumes  the  doubling  of  the 
allowance coming into force  retroactively from  February 2020 (following the parliamentary 
vote  which  confirmed  the  original  schedule  of  the  doubling),  while  the  winter  forecast 
assumed the increase to take place in August 2020 (following the plans of the government at 
that  time).  The  remaining  difference  is  due  to  updated  information  on  the  execution  of  the 
2020 budget, in particular higher spending on public investment than the one projected by the 
Commission  in  winter.  The  combined  impact  of  the  government’s  attempts  to  moderate 
pension and child allowance increases and postpone some wage increases could improve the 
2020  headline  and  structural  balance  by  close  to  1.3  pps.  of  GDP,  compared  to  the 
Commission 2020 autumn  forecast.  Even in  this case, however, budgetary developments,  in 
structural  and  nominal  terms,  would  still  not  be  in  line  with  a  correction  of  the  excessive 
deficit in the foreseeable future. 

the  adjustment 

that  would  have  been  expected  according 

Overall,  even  correcting  for  the  effect  of  the  COVID-19  crisis,  the  projected  budget  deficit 
deviates  from 
the 
Recommendation, though the size of the deviation cannot be precisely assessed at this stage.  
The exceptional uncertainty surrounding the macroeconomic forecasts related to the evolution 
of the pandemic and its socio-economic consequences would not allow to credibly establish a 
new robust adjustment path at this point in time. However, it is clear that the correction of the 
excessive deficit will require a substantial and continued structural fiscal effort in the coming 
years.  The  measures  proposed  by  the  government  in  August  2020  and  rejected  by  the 
Parliament would not be sufficient in that regard. 

to 

Table  3:  Comparison  of  key  macroeconomic  and  budgetary  variables  under  the 
Commission’s forecasts and the recommended adjustment path 

Commission 2020 winter forecast (extended) – 
baseline scenario 

Real GDP growth 

Headline general government balance 

Structural balance 

Change in structural balance 

Net expenditure growth corrected for one-offs (nominal) 

Output gap 

April 2020 Article 126(7) Recommendation 

Real GDP growth 

Headline general government balance 

Structural balance 

Change in structural balance 

Net expenditure growth corrected for one-offs (nominal) 

Output gap 

% 

% of GDP 

% of GDP 

% of GDP 

% 

% 

% 

% of GDP 

% of GDP 

% of GDP 

% 

% 

8 

2019 

2020 

2021 

2022 

3,9 

-4,0 

-3,9 

-1,1 

13,2 

0,1 

3,8 

-4,9 

-4,9 

-1,0 

12,9 

0,0 

3,5 

-6,9 

-6,8 

-1,9 

13,7 

-0,3 

3,5 

-7,7 

-7,6 

-0,8 

10,3 

-0,5 

2019 

2020 

2021 

2022 

3,9 

-4,0 

-3,9 

-1,1 

13,2 

0,1 

3,3 

-3,6 

-3,4 

0,5 

8,2 

-0,6 

2,4 

-3,4 

-2,7 

0,8 

5,5 

-1,9 

2,7 

-2,8 

-1,8 

0,8 

5,5 

-2,8 

 
 
 
  
 
 
 
 
 
 
  
Commission 2020 autumn forecast 

Real GDP growth 

Headline general government balance 

Structural balance 

Change in structural balance 

Net expenditure growth corrected for one-offs (nominal) 

Output gap 

% 

% of GDP 

% of GDP 

% of GDP 

% 

% 

2019 

4,2 

-4,4 

-5.0 

-1,7 

13.6 

 2.4 

2020 

-5,2 

-10,3 

-8,6 

-3,6 

15.9  

-5.3  

2021 

3,3 

-11,3 

-9,9 

-1,3 

9.8  

-4.4  

2022 

3,8 

-12,5 

-11,5 

-1,6 

9.3  

-3.0  

5.  FISCAL POLICY CONCLUSIONS 

Based  on  the  Commission  2020  autumn  forecast  and  the  analysis  of  recent  macroeconomic 
and  budgetary  developments,  Romania  is  not  set  to  make  the  adjustments  that  would  be 
necessary  in  order  to  ensure  that  the  excessive  deficit  identified  in  the  Recommendation  is 
corrected  in  the  foreseeable  future.  The  deterioration  of  the  economic  outlook  and  the 
introduction  of  emergency  measures  to  combat  the  COVID-19  pandemic  and  its  economic 
and  social  consequences  can  only  partly  explain  the  projected  rise  in  the  deficit.  Important 
underlying drivers of the fiscal situation that were already present before the pandemic struck 
in  2020,  have  not  been  modified.  These  include  unfunded  large  pension  increases,  a  higher 
child allowance, reductions in indirect taxes and cuts in social security contributions for some 
categories of workers.  

The attempts by the government to moderate the impact of some of these measures have been 
rejected  by  the  Parliament  and  the  outcome  is  unknown.  However,  even  if  the  proposals  to 
moderate  the  increases  in  pension  expenditures  and  the  child  allowance  are  ultimately 
adopted, the fiscal outlook will remain very unfavourable as expenditure on those items would 
still  increase  and  there  is  no  provision  for  financing  the  higher  expenditure  from  additional 
resources  or  cost  savings.  The  authorities  would  thus  need  to  consider  substantial  further 
structural  actions  on  both  the  revenue  and  expenditure  sides  in  order  to  set  the  deficit  on  a 
declining path and prevent a steep increase in the debt-to-GDP ratio. Due to the current high 
uncertainty, fiscal sustainability risks will be reassessed in spring 2021. 

Given  the  high  prevailing  uncertainty  regarding  the  development  of  the  pandemic  and  its 
socio-economic  consequences,  the  general  escape  clause  will  remain  active  in  2021. 
Depending on the evolution of the pandemic, emergency measures might need to be adjusted 
and combined with measures to support the recovery. The measures to support the recovery 
throughout  2021,  as  suggested  in  the  letter  sent  by  Executive  Vice-President  Dombrovskis 
and  Commissioner  Gentiloni  to  the  Romanian  Minister  of  Public  Finance  Cîtu  on  19 
September  2020,  should  be  tailored  to  the  country’s  specific  situation  and  should  be  well-
targeted and temporary. Member States should, therefore, avoid introducing measures with a 
permanent negative impact on budget balances. Indeed, it is important to note that the general 
escape clause is subject to the preservation of fiscal sustainability in the medium term. 

Moreover,  as  recalled  in  Section  1,  sound  macroeconomic  policies,  including  sustainable 
public finances, are a prerequisite for ensuring an environment conducive to productive public 
investment and effective use of the EU Funds, including substantial grants and loans available 
in the context of the Recovery and Resilience Facility. 

9