European Commission urges Romania to cut structural deficit by 1 pct of GDP in 2019; says “no effective action was taken” in response to prior recommendation

The European Commission has established that Romania took no effective action in response to the Council recommendation of June and now proposes a revised recommendation of an annual structural adjustment of at least 1 percent of GDP in 2019, EU’s executive branch said on Wednesday, in a press release.

In June 2018, the Council issued a recommendation of an annual structural adjustment of 0.8 percent of GDP in both 2018 and 2019 to Romania under the Significant Deviation Procedure (SDP).

“For Romania, the Commission has established that no effective action was taken in response to the Council recommendation of June and proposes that the Council adopts a revised recommendation to Romania to correct its significant deviation from the adjustment path towards the medium-term budgetary objective,” the EC says.

Romania’s GDP is estimated at more than EUR 200 billion in 2019 and this means a deficit cut of more than EUR 2 billion next year, according to Business Review calculations.

The European Commission now urges Romania to cut its structural deficit at larger scale.

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“In light of developments since and following the lack of effective action by Romania to correct its significant deviation, the Commission now proposes a revised recommendation of an annual structural adjustment of at least 1 percent of GDP in 2019,” EU’s executive branch points out.

The public deficit has increased in Romania from 0.5 percent in 2015 to 2.9 percent in 2016 and is forecast to reach 3.3 percent in 2018, 3.4 percent in 2019 and 4.7 percent in 2020, according to the EC.

“This is the highest deficit in the EU,” the Commission warns.

The structural deficit is a budget deficit that results from a fundamental imbalance in government receipts and expenditures, as opposed to one based on one-off or short-term factors, according to Financial Times’ definition.

A government budget deficit occurs when a government spends more than it receives in tax revenue, while a structural deficit is when a budget deficit persists for some time.