The new government to be formed by president-elect Nicusor Dan within three to four weeks based on a ruling majority that was not yet agreed upon will have a tight deadline and less than two months to come up with a fiscal consolidation plan aimed at bringing Romania's public deficit back on the trajectory set under the seven-year plan agreed with the European Commission last autumn. 

President-elect Nicusor Dan said, in a Financial Times interview, that a 7.5%-of-GDP [ESA] gap is the most Romania can hope, according to Economedia.ro. But this would still be enough compared to the 7% official target under the seven-year consolidation roadmap, a 7.5% gap seen as acceptable by the rating agencies, and an 8.6% outcome under the no-policy-change scenario of the European Commission. 

The June 4 deadline for the fiscal plan, under the Excessive Deficit Procedure, was de facto already missed – while the Fitch rating agency will issue the next country review on August 15. 

Like the other two major rating agencies, Fitch assigned Romania a negative outlook to its fragile sovereign rating, and further downgrade would put Romanian debt in the category of investments not recommended to a broad category of institutional investors – with the consequence of higher cost of borrowing.

The figures mentioned by president-elect Dan, who seeks close involvement in the process of drafting the new fiscal strategy, and ministers of the caretaker government, are not yet convergent. This is in part understandable since the 2024 public deficit was recently announced at 9.3% of GDP [ESA terms], well above the 8.6% estimated by the Government in January or 7.9% assumed under the initial form of the seven-year fiscal consolidation plan inked last autumn.

Nicusor Dan spoke of cutting public expenditures by  EUR 6 billion (just over 1.5% of GDP) and a feasible deficit of 7.5% of GDP "down from 9.3% in 2024" [meaning he speaks in ESA terms]. 

In his turn, minister of investments and European projects Marcel Bolos spoke of a RON 23 billion (EUR 4.6 billion) "budgetary impact" envisaged for this year under the seven-year fiscal consolidation roadmap, Cursdeguvernare.ro reported. He said this impact would account for 1.7% of GDP when, in fact, the RON 23 billion is 1.2% of this year's GDP under the official forecast. 

iulian@romania-insider.com

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