COMMUNICATION FROM THE COMMISSION Assessment of action taken by Romania in response to the Council Recommendation of 18 June 2021 with a view to bringing an end to the situation of an excessive government deficit in Romania
Date: 2021-11-24
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Romania, budget deficit, budget estimate, budgetary equilibrium, budgetary expenditure, gross domestic product

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.11.2021  COM(2021) 915 final  COMMUNICATION FROM THE COMMISSION Assessment of action taken by Romania   in response to the Council Recommendation of 18 June 2021 with a view to bringing an end to the situation of an excessive government deficit in Romania  
 
 
COMMUNICATION FROM THE COMMISSION 

Assessment of action taken by Romania  

in response to the Council Recommendation of 18 June 2021 with a view to bringing an 
end to the situation of an excessive government deficit in Romania 

1. 

INTRODUCTION 

On 18 June 2021, the Council adopted a recommendation under Article 126(7) of the Treaty 
on  the  Functioning  of  the  European  Union  (TFEU),  with  a  view  to  bringing  an  end  to  the 
situation of an excessive government deficit in Romania by 2024 at the latest. 

Romania  was  recommended  to  reduce  the  general  government  deficit  to  8.0%  of  GDP  in 
2021, 6.2% of GDP in 2022, 4.4% of GDP in 2023, and 2.9% of GDP in 2024. Based on the 
Commission  2021  spring  forecast  underpinning  the  Council  recommendation,  this  was 
considered consistent with an annual structural adjustment of 0.7% of GDP in 2021, 1.8% of 
GDP in 2022, 1.7% of GDP in 2023, and 1.5% of GDP in 2024, and with a nominal growth 
rate of net primary government expenditure of 3.4% in 2021, 1.3% in 2022, 0.9% in 2023 and 
0.0%  in  2024.1  The  Council  recommended  that  Romania  fully  implement  the  measures 
already  adopted  for  2021  and  specify  and  implement  the  additional  measures  that  are 
necessary  to  achieve  the  correction  of  the  excessive  deficit  by  2024.  The  Council  also 
recommended that Romania use any windfall gains to reduce the general government deficit 
and  that  budgetary  consolidation  measures  secure  a  sustainable  correction  in  a  growth-
friendly  manner.  Furthermore,  the  Council  recommended  that  Romania  ensure  the  full  and 
effective application of the national fiscal framework and to support the fiscal consolidation 
with comprehensive reforms. 

In  accordance  with  Article  3(4a)  of  Council  Regulation  (EC)  No  1467/97,  the  Council 
established the deadline of 15 October 2021 for Romania to report in detail on action taken in 
response to the Council recommendation. Romania submitted its report on 14 October 2021. 

The Commission has examined the budgetary strategy of Romania based on the information 
included  in  the  report  on  action  taken  in  order  to  assess  whether  the  Member  State  has 
complied with the Council recommendation of 18 June 2021. 

Box 1: Methodology For Assessing Effective Action 

According  to  Regulation  (EC)  No  1467/97  and  the  Code  of  Conduct,2  a  Member  State  should  be 
considered  to  have  taken  effective  action  if  it  has  acted  in  compliance  with  either  the  Council 

1 Net primary  government expenditure comprises 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 4-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. 

2 “Revised Specifications on the implementation of the Stability and Growth Pact and Guidelines on the format 
and content of Stability and Convergence Programmes”, available at: 
https://data.consilium.europa.eu/doc/document/ST-9344-2017-INIT/en/pdf 

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recommendation  under  Article  126(7)  of  the  TFEU  or  the  Council  decision  to  give  notice  under 
Article 126(9). On 29 November 2016, the Economic and Financial Committee adopted its Opinion 
entitled “Improving the assessment of effective action in the context of the excessive deficit procedure 
– a specification of the methodology”, which was endorsed by the ECOFIN Council on 6 December 
2016.3  This  Opinion  sets  out  an  EDP  decision  tree  for  assessing  whether  effective  action  has  been 
taken. 

If  the  Member  State  concerned  is  compliant  with  the  headline  deficit  target  and  the  underlying 
improvement in the structural balance, the procedure is held in abeyance. If the Member States fails or 
is  at  risk  of  failing  to  meet  the  headline  deficit  target  or  the  required  improvement  in  the  structural 
balance,  or  both,  a  careful  analysis  of  the  reasons  of  the  shortfall  will  be  undertaken.4  The  careful 
analysis is, therefore, a centrepiece in the assessment of effective action. 

The careful analysis first uses the expenditure benchmark to assess fiscal effort. All in all, the aim of 
the  careful  analysis  is  to  provide  an  adequate  estimation  of  the  extent  of  policy  actions,  to  evaluate 
whether  the  Member  State  concerned  has  delivered  on  its  policy  commitments  as  set  in  the  EDP 
recommendation.  If  the  expenditure  benchmark  is  met,  meaning  that  it  shows  an  effort  equal  to  or 
above what was recommended, there is a presumption that the Member State concerned has delivered 
on  its  policy  commitments.  If  the  expenditure  benchmark  is  not  met,  there  is  a  presumption  the 
Member State has not delivered on its policy commitments. 

The Commission uses qualitative economic judgement in making its final assessment where relevant, 
in particular of the outcome of the expenditure benchmark, as part of the careful analysis which the 
Commission uses to determine whether the Member State concerned has delivered or not on its policy 
commitments. In other words, the careful analysis evaluates whether the Member State concerned has 
put in place enough actions to comply with the EDP recommendation. In sum, any conclusion needs to 
take  into  consideration  the  quantitative  information  from  the  expenditure  benchmark  together  with 
other  considerations  –  mostly  of  qualitative  nature  –  that  do  not  emerge  from  the  benchmark  itself. 
These  considerations  are  typically  related  to  the  reasons  that  have  caused  the  non-fulfilment  of  the 
expenditure benchmark and are directly linked to fiscal developments. 

If  the  careful  analysis  concludes  that  the  Member  State  concerned  has  delivered  on  its  policy 
commitments, the assessment will conclude that effective action has been taken, with a possibility to 
extend  the  deadline,  even  if  the  headline  deficit  target  has  not  been  met.  If  the  careful  analysis 
concludes that policy commitments have not been delivered and that the headline deficit target is not 
met,  the  assessment  will  conclude  on  non-effective  action  and  the  procedure  should  be  stepped  up 
including by setting a new correction path (and possibly deadline) as appropriate. 

It must be emphasised that if the intermediate headline deficit target has been met, the procedure will 
not  be  stepped  up  even  if  the  policy  commitments  have  not  been  delivered.  However,  it  should  be 
stressed  that  where  the  absence  of  a  stepping-up  of  the  procedure  is  taken  based  on  in-year  data, 
should the (notified) ex post data show that the intermediate headline deficit target was eventually not 
met, the EDP can still be stepped up. 

3 See Annex 4 of the Code of Conduct. 
4 The Code of Conduct on the SGP states in this respect that: “In case the observed budget balance proves to be 
lower  than  recommended  or  if  the  improvement  of  the  cyclically-adjusted  balance  net  of  one-off  and  other 
temporary  measures  falls  significantly  short  of  the  adjustment  underlying  the  target,  a  careful  analysis  of  the 
reasons of the shortfall will be made”. 

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2.  ASSESSMENT OF ACTION TAKEN BY ROMANIA 

2.1.  Measures  included  in  the  report  on  action  taken  and  updated  budgetary 

projections 

Since  5  October  2021,  Romania  has  had  a  caretaker  government  with  limited  competences. 
Therefore, the report on action taken submitted by Romania on 14 October 2021 focuses on 
measures adopted with the aim of ensuring compliance with the intermediate budgetary target 
for  2021.  The  report  also  recalls  the  budgetary  targets  from  the  May  2021  Convergence 
programme  for  the  period  2021-2024,  and  confirms  the  commitment  therein  to  bring  the 
deficit  below  3%  of  GDP  by  2024,  without  presenting  any  new  fiscal  policy  measures  for 
2022-2024,  which  would  be  necessary  to  ensure  compliance  with  the  respective  budgetary 
targets. 

The general government deficit for the period January-August 2021 stood at 3.4% of GDP in 
cash terms, lower by 1.8 pps. of GDP compared to the same period last year. According to the 
report the deficit in  cash terms for 2021 is expected to be around 7.1% of GDP (RON 83.8 
bn), instead of 7.2% of GDP (RON 80 bn) originally planned in the 2021 budget. This cash 
deficit would correspond to an ESA deficit of around 8% of GDP, in line with the budgetary 
target for 2021 in the EDP recommendation.5 

With respect to 2021, no changes to the tax system are reported, except for slight increases in 
the level of excise duty on tobacco starting on 1 January 2021, with a budgetary impact close 
to  0.1% of GDP.  Concerning  general  government expenditure,  the report  lists  the following 
measures implemented throughout 20216: 

  maintainance of gross wages in  the public sector, including  bonuses, allowances and 
premiums  (insofar  as  the  staff  hold  the  same  position  and  work  under  the  same 
conditions) at the level granted for December 2020;  

  maintainance of the pension  point  (the value used to  convert the points  accumulated 
throughout years based on earnings into regular pension payments) at RON 1 442 from 
September  2020;  return,  as  of  2022,  to  the  existing  transparent  mechanism  for 
establishing  the  value  of  the  pension  point  consisting  of  raising  the  pension  point, 
starting 1 January of each year, by the average annual inflation rate, to which is added 
at most 50% of the increase in the realised real average gross wages, as approved by 
Government Emergency Ordinance (GEO) no. 8/2021; 

  maintainance of the food allowance at the level set for 2020; 

  non-awarding of prizes and holiday allowance provided by Law no. 153/2017;  

  compensation of overtime work for public sector employees with free time only; 

5 Compared to the initial budget, the 2021 general government revenue increased by RON 17.6 billion and the 
general  government expenditure increased by  RON 21.4 billion in cash terms. The September budget revision 
contains allocations to support the health sector (0.38 % of GDP) taking into account the additional expenditure 
created  by  the  COVID-19  pandemic  and  further  investment  projects  at  central  and  local  level  (plus  0.6%  of 
GDP), 
6 The effective action report does not quantify the budgetary effect of each of the measures listed. 

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  extension of the use of holiday vouchers issued in 2019 and 2020 until the end of 2021 
and suspension of the issuance of holiday vouchers for 2021 by public authorities and 
institutions;  

  increase  of  the  minimum  gross  salary  by  3.1%  as  compared  to  December  2020,  at 

RON 2 300 per month, starting 13 January 2021;  

  increase  of  the  state  allowance  for  children  by  16%  compared  to  the  value  in 
December 2020, starting January 2021, and by further 14% from 1 January 2022 and 
establishment,  from  2023,  of  a  transparent  indexation  mechanism  by  GEO  no. 
56/2021; 

  reduction of the tariffs offered to students for means of transport. 

According to the report, measures aimed at strengthening tax collection will continue during 
the rest of 2021, also in the context of the Operational Revenue Recovery Plan and National 
Agency  for  Fiscal  Administration  (NAFA)  Strategy  2021-2024  and  the  Recovery  and 
Resilience  Plan  (RRP).  The  measures  aim  at  supporting  tax  compliance  by  improving 
business processes and services to taxpayers, digitalising NAFA, and preventing tax evasion. 
The  authorities  expect  that  these  reforms  will  increase  the  revenue-to-GDP  ratio  by  2.5 
percentage points by 2026 as compared to the 2019 value of the ratio. 

In  2021,  the  government  maintained  the  measures  to  support  households  and  businesses 
introduced in 2020, including state guarantees, financing programmes, the easing of some tax 
obligations,  grants  to  support  employment  and  to  preserve  the  link  between  employers  and 
employees in case of temporary interruption of activity due to the COVID-19 pandemic, the 
purchase  and  administration  of  COVID-19  vaccines,  expenditure  for  purchasing  of  medical 
equipment  and  to  cover  the  extra  cost  for  public  health  personnel,  and  IT  equipment  for 
students.  The  budget  revision  adopted  in  September  2021  contains  additional  allocations  to 
support the health sector and further investment projects at central and local levels. According 
to the report, the impact of temporary measures related to the COVID-19 pandemic as part of 
the  2021  budget,  including  the  September  revision,  amounts  to  RON  7.33  billion  (0.6%  of 
GDP). The report does not include the measures to support households and enterprises against 
energy  price  increases,  which  were  adopted  on  16  September  2021  (see  section  2.2),  and 
which will have effect for 5 months starting on 1 November 2021. 

The  report  submitted  by  Romania  on  14  October  mentions  that  the  further  reduction  of  the 
deficit  planned  over  the  medium  term  will  occur  mainly  on  the  expenditure  side,  while  tax 
revenues  as  a  share  of  GDP  will  remain  relatively  constant,  not  yet  taking  into  account  the 
impact  of  reforms  and  investments  contained  in  Romania’s  RRP.  However,  the  report  does 
not specify any further details of the consolidation strategy for 2022 and beyond. 

Related to this, it should be noted that the medium-term fiscal strategy for 2022-2025, which, 
according to the national fiscal rules, the government has to prepare and adopt in August,  is 
still pending. 

2.2.  Assessment of action taken 

The Commission 2021 autumn forecast projects a headline deficit of 8.0% of GDP in 2021, 
which  is  in  line  with  the  deficit  target  in  the  Council  recommendation  (see  Table  2).  This 
projection  takes  into  account  all  measures  mentioned  in  the  report  on  action  taken  (see 
Section 2.1), in particular the consolidation measures adopted at the beginning of the year, i.e. 

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the wage and pension freezes and cuts to some bonuses and other remunerations, as well as 
the  budget  revision  of  September  2021,  and  the  measures  to  support  households  and 
enterprises  against  energy  price  increases  adopted  on  16  September  2021.  Revenues  are 
forecast  to  be  higher  than  expected  in  Spring,  mainly  as  a  result  of  higher-than-expected 
nominal  GDP  growth.  The  positive  impact  on  the  deficit  of  higher  revenues  is,  however, 
projected to be offset by higher-than–planned expenditures on most public expenditure items. 
The Commission forecast also takes into account the RRP-financed expenditure and revenue 
based on the plan approved by the Council on 29 October 2021 (see Table 1).7 

Table 1: Recovery and Resilience Facility financed expenditure  

Grants 

RON billion 

EUR billion 

2021 

1,0 

0,2 

2022 

11,6 

2,4 

2023 

15,0 

3,1 

2024 

16,2 

3,3 

2025 

15,7 

3,2 

% of annual GDP 

0,09% 

0,90% 

1,07% 

1,08% 

0,98% 

% of total  

% of total (cumulative) 

Loans 

RON billion 

EUR billion 

1% 

1% 

2021 

0,7 

0,1 

17% 

18% 

2022 

10,0 

2,0 

22% 

40% 

2023 

16,5 

3,4 

23% 

63% 

2024 

18,2 

3,7 

23% 

86% 

2025 

15,7 

3,2 

2026 

TOTAL 

10,0 

2,0 

0,60% 

14% 

100% 

69,6 

14,2 

100% 

2026 

TOTAL 

11,9 

2,4 

73,0 

14,9 

100% 

% of annual GDP 

0,06% 

0,78% 

1,17% 

1,21% 

0,98% 

0,71% 

% of total  

% of total (cumulative) 

1% 

1% 

14% 

15% 

23% 

37% 

25% 

62% 

22% 

84% 

16% 

100% 

According to the Commission 2021 autumn forecast, the adjustment in the structural balance 
for 2021 is 0.4 pps, below the recommended 0.7 pps. As per the methodology for assessing 
effective  action  (see  Box  1),  this  warrants  a  careful  analysis  based  on  the  evolution  of  net 
expenditure growth.  

In  2021,  net  expenditure  growth  (adjusted  for  one-offs)  is  projected  at  5.9%  in  the 
Commission 2021 autumn forecast, above the recommended 3.4%. Therefore, the deviation of 
net expenditure growth from the recommendation goes in the same direction as the deviation 
of the adjustment in the structural balance, although with a larger magnitude (0.9% of GDP in 
the  case  of  net  expenditure  growth  compared  to  0.3%  of  GDP  in  the  case  of  the  structural 
balance). The difference can be partly explained by revenue windfalls in 2021, which improve 
the  structural  balance  but  do  not  affect  the  expenditure  benchmark.8  Despite  the 
aforementioned consolidation measures implemented by the Romanian government, slippages 

7 The 2021 Autumn forecast includes the impact of annual expenditure financed by RRF grants (non-repayable 
financial  support)  and  loans  and  the  corresponding  revenue  from  grants  on  an  accrual  basis  (i.e.  based  on  the 
planned implementation of projects as described in the Council Implementing Decision and the costs described 
in the accompanying documents of the Romania’s RRP). Although RRF grants are deficit neutral, the impact of 
loans is not. The main differences with the RRF figures underlying the EDP recommendation are that the profile 
of  both  grants  and  loans  is  more  frontloaded,  and  that  the  forecast  of  the  nominal  GDP  is  higher,  making  the 
RRF figures as a share in GDP slightly lower. 
8 According to the Commission 2021 autumn  forecast, the  additional revenues  stemming from higher nominal 
GDP growth rate amounts to 0.2 pps. 

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in  most  public  expenditure  items  drive  the  deviation  in  net  expenditure  growth  in  2021, 
including  personnel  expenditure,  purchase  of  goods  and  services  and  social  assistance 
expenditure. More than half of these slippages can be attributed to higher expenditure related 
to COVID-19 (mainly in the health sector) and measures to cope with significant increases in 
energy prices, while the rest can be associated with inadequate control of spending.  

Table 2: Romania’s fiscal adjustment path 

2020 

2021 

2022 

2023 

2024 

% y/y 

% of GDP 

June 2021 Article 126(7) recommendation 
GDP growth rate 
Headline general government 
balance 
Structural balance 
Change in structural balance 
Net expenditure growth corrected 
for one-offs (nominal) 
Commission 2021 autumn forecast9 
GDP growth rate 

% of GDP 
% of GDP 

% y/y 

% 

Headline general government 
balance 

Structural balance 
Change in structural balance 
Net expenditure growth corrected 
for one-offs (nominal) 

% of GDP 

% of GDP 
% of GDP 

% 

-3.9 

-9.2 

-7.5 
-2.8 

16.2 

-3.9 

-9.4 

-7.5 
-2.8 

16.2 

5.1 

-8.0 

-6.9 
0.7 

3.4 

7.0 

-8.0 

-7.1 
0.4 

5.9 

3.4 

-6.2 

-5.0 
1.8 

1.3 

5.1 

-6.9 

-6.4 
0.7 

5.1 

3.2 

-4.4 

-3.3 
1.7 

0.9 

5.2 

-6.3 

-6.1 
0.3 

7.1 

2.9 

-2.9 

-1.9 
1.5 

0.0 

4.5 

-6.8 

-7.1 
-0.9 

11.7 

According  to  the  Commission  2021  autumn  forecast,  extended  until  2024,  the  deficit  is 
expected to  amount  to  6.9% of GDP in  2022.  It  is  then expected to  fall to 6.3% of GDP in 
2023 and widen to 6.8% of GDP in 2024. In the absence of measures for 2022 (and beyond), 
these  projections  are  made  under  the  usual  no-policy  change  assumption.  The  projected 
improvement  in  the  headline  deficit  in  2022  is  driven  by  improved  revenues  (mostly  on 
account  of  strong  growth,  supporting  government  revenues  from  taxes  and  social 
contributions),  fiscal-structural  measures  contained  in  the  RRP  (i.e.,  the  tax  administration 
reform  and  the  tax  framework  review),  and  the  phase-out  of  emergency  measures.  The 
projections of the headline deficit for 2021 and 2022 also take into account the measures to 
support households and enterprises against energy price increases, which are expected to cost 
in total about 0.2% of GDP over the two years.  

The  projected  2022  deficit  in  the  Commission  2021  autumn  forecast  is  0.7  pps  above  the 
headline  deficit  target  recommended  by  the  Council,  while  the  adjustment  in  the  structural 
balance is forecast to be 0.7 pps in 2022, against the recommended 1.8 pps. As provided in the 
methodology  for  assessing  effective  action  (see  Box  1),  this  situation  calls  for  a  careful 
analysis of the expenditure benchmark. 

While  acknowledging  the  no-policy-change  nature  of  these  projections,  the  net  expenditure 
growth  target  for  2022  is  not  expected  to  be  met,  and  there  are  expected  to  be  further 
deviations in 2023 and 2024 (see Table 2). The deviation of net expenditure growth from its 

9 The Commission 2021 autumn forecast does not include projections for 2024. Figures for 2024 in this table are 
extrapolated from the Commission autumn forecast under the usual no-policy change assumption. 

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targets is consistent with the deviation of the structural balance in 2022. The slight projected 
improvement  in  2022  for  both  indicators,  mainly  due  to  the  discontinuing  of  part  of  the 
COVID-19  measures,  is  not  enough  to  meet  the  targets  for  that  year,  as  no  consolidation 
measures are included in the EDP report. The lack of such measures is the main driver also 
for the targets not being met in the outer years, in spite of the higher projected GDP growth 
over the entire EDP period, compared to the Commission 2021 spring forecast. 

Since  June  2021,  there  have  been  no  substantial  actions  to  ensure  the  full  and  effective 
application of the national fiscal framework. In particular, as mentioned above, the update of 
the medium term fiscal strategy, due in August, has not been published yet. 

The Romanian RRP includes fiscal-structural measures. The reform of the tax administration, 
which  is  set  to  strengthen  tax  collection,  was  taken  into  account  in  the  Commission  2021 
autumn  forecast  and  thus  in  the  assessment  of  action  taken  by  Romania.  The  plan  also 
includes a review of the tax framework with the objective to gradually phase out excessive tax 
incentives and exemptions, and to expand green taxation. Furthermore, the plan includes the 
introduction of systematic spending reviews, which increase the efficiency of public spending, 
and  a  reform  of  the  pension  system  to  make  it  more  stable  and  improve  its  fiscal 
sustainability. 

3.  CONCLUSIONS 

On  14  October  2021,  Romania  reported  on  the  action  taken  in  response  to  the  June  2021 
Article 126(7) recommendation. The authorities have confirmed their commitment to ensuring 
a correction of the excessive deficit as required by the Council. However, given the caretaker 
nature of the government, the report on action taken contains only the measures adopted with 
the aim of delivering compliance with the 2021 intermediate deficit target.  

According  to  the  Commission  2021  autumn  forecast,  the  headline  deficit  is  expected  to 
amount to 8.0% of GDP in 2021, in line with the recommended target, while the fiscal effort 
is expected to fall short of the requirements. At the same time, the targets for 2022-2024 are 
currently  not  projected  to  be  met  on  a  no-policy-change  basis,  indicating  the  need  for  a 
medium-term consolidation strategy and corresponding corrective measures. On the basis of 
the projected achievement of the required headline deficit target in 2021, the excessive deficit 
procedure should be kept in abeyance at this stage.  

The  Commission  expects  the  Romanian  government,  when  formed,  to  present  a  budget  for 
2022 and a medium-term fiscal strategy in line with the June 2021 Council recommendation 
as a matter of urgency. The  Commission  will  re-examine compliance with  the requirements 
set out in the Council recommendation on the basis of the information in the budget and the 
medium-term fiscal strategy. 

7