Romania’s government has increased its budget deficit target for 2023, raising concerns about its commitment to European Union fiscal rules, Bloomberg reports.
The move comes ahead of general and presidential elections later this year, prompting accusations of politically motivated spending.
The cabinet of Prime Minister Marcel Ciolacu announced on Monday that the deficit will now reach 6.9% of economic output, a sharp increase from the previously planned 5%. This rise is attributed to increased spending on pensions, investment, and defense.
The decision has drawn criticism from the European Commission, which has repeatedly rebuked Romania for exceeding the EU’s 3% deficit limit. The commission’s May forecasts already identified Romania as having the widest deficit among EU member states. This latest revision will further increase Romania’s public debt to 51.5% of economic output.
Prime Minister Ciolacu, who is running for president, has defended the deficit increase, arguing it is necessary to boost investment and spur growth. However, independent experts like Daniel Daianu, head of the Fiscal Council, believe the target is overly ambitious and the deficit could reach 8% by year’s end without significant spending cuts.
“We’ll need to see a very ample package of fiscal changes from next year to reverse this trend because at some point the markets may not fund you anymore,” warned Daianu.
Romania’s heavy reliance on debt financing is evident in its $18 billion bond issuance this year, making it the largest issuer in Central and Eastern Europe. The country currently holds the lowest investment grade rating from all three major rating agencies.
While Romania is not alone in facing EU deficit reprimands – France and Italy are among seven nations facing similar scrutiny – its prolonged defiance of fiscal rules is raising concerns. Romania’s request for a seven-year grace period to rectify its deficit situation has yet to be accompanied by a concrete plan, further exacerbating the situation.
