CONTEXT

• The budget deficit soared at the beginning of this year, reaching 1.67% of GDP after just two months, with prospects of further worsening in March. The hole of 29 billion lei accumulated in the first two months, of which 21 billion in February alone, marks an unfortunate record for this period. It comes against a backdrop of large deferred spending from 2023 on defence, but also large sums for health debt relief, which could not be offset by improved revenue collection.
• Concurrently with the deterioration of the budget deficit, the public debt also deepens, marking, at the end of 2023, an increase of more than two times compared to 2019. The more than 782 billion lei equaled 48.9% of the GDP, and the prospect of exceeding the threshold of 50% of GDP, above which the Government must automatically adopt expenditure reduction measures, is imminent. Exemptions frequently given in the past to the Fiscal-Budgetary Responsibility Law are to be expected this year as well, one with several rounds of elections, but the problem of deficit and indebtedness cannot be rolled over indefinitely.
• The State Treasury accelerated loans at the beginning of the year, managing to cover a large part of the financing requirement. The deterioration of public finances, however, is already putting pressure on the country’s borrowing costs, risking a downward revision of the country’s rating (so far remarkably avoided), especially if budget execution or economic growth disappoints in the first part of the year.
• Economists expect a second consecutive year in which GDP growth will be below potential, becoming pessimistic about inflation as well. Held above 7% for the second month in a row in February, above analysts’ expectations, this rules out the chances of a rate cut by the NBR in April. After the increase in taxes at the beginning of the year, Romania took the first place in the EU in inflation in January.
• The local macroeconomic picture overlaps with a period of uncertainty that also dominates the European economy, in the context of the recent crises, the war in Ukraine and the risks that persist for regional financial stability, even if the markets have recovered.
• Public finance problems are also a threat to the business environment. Beyond the impact of inflation felt strongly recently, Romanian managers and entrepreneurs fear that the bill for the large deficits of the state will be sent to them too, in the form of increased taxes and fees after the elections, other casualties risking to be investments.

DISCUSSION TOPICS:

• How can the situation of current growing deficits be overcome?
• With what solutions can the Government stabilize the state of public finances without cutting back on investments, as it has done countless times in the past, sacrificing the prospects of economic growth? In 2024 we should have the largest share of investment in GDP so far. What will happen to public and private investment in the coming months?
• Fields and priority areas for investment.
• How can we return to sustained economic growth after two years of below-potential growth?
• The evolution of the absorption of European funds. Perspectives for PNRR. Overcoming blockages.
• Which measures are realistically likely to deliver a dramatic deficit reduction of 4 percent of GDP, i.e. no less than €14 billion over the next period?
• How can the collection of budget revenues be improved, reaching the real areas of evasion, without putting additional pressure also on that part of the economy that usually pays its taxes and duties?
• ANAF reform. Challenges for digitization.
• The situation of local public finances. Challenges for mayors in the current context.
• Investment priorities at the local level. The expectations of the business environment from local administrators.
• What about local taxes and fees?
• Perspectives for the financing and refinancing of the public debt. Financial market expectations. Cost horizon. Diversification and new tools.
• To what extent can entrepreneurs and employees bear new tax increases after the election? Outlook for the single rate, VAT, labor taxation, tax exemptions.
• What effects does the state of public finances have on the business environment?
• How does the entrepreneurial environment adapt to the current context?
• What budgets do entrepreneurs and managers plan in times of fiscal and macroeconomic uncertainty?
• Priorities for private investments in a period of technological transformations

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