Erste: Romania Needs New Fiscal Package to Avoid Junk Rating

Romania needs a new tax reform to avoid a junk rating, warns Erste, one of Europe’s largest banks. A “junk” rating means the country is no longer recommended for investors.

The paralyzed policy endangers the country’s rating, the financial institution states, which claims in its analysis that Romania needs new measures to immediately reduce spending and, implicitly, the budget deficit to reach 7% of GDP, a target that specialists say would be ambitious, given the large deficit in the first two months.

At the moment, 90% of public spending goes to pensions and salaries. In the bank’s opinion, this second fiscal package was postponed precisely because of the repeated elections. 

Romania had a deficit of 8.7% of GDP last year, the largest in the region. In its analysis, the bank states that Romania, Slovakia and Poland must urgently reduce their deficits. The forecasts are somewhat bleak and Romania would reach the highest public debt in 10 years, over 100% of GDP, if measures are not taken to reduce spending.

“Romania, Slovakia and Poland have the most pressing need to reduce deficits because, in a scenario where they do not take action, the share of public debt would reach over 90% of GDP by 2035, according to European Commission projections,” Erste argues, as quoted by Profit.ro.

The President of the Fiscal Council, Daniel Dăianu, reiterated on Wednesday at Digi 24 that the change in the fiscal regime is inevitable, because the reduction in budget spending is not enough to reduce the deficit, with the real possibility that it will reach 8% of GDP this year, “a very large distance from what was programmed as a reduction in the budget deficit in 2025”.