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July 31, 2021

Former PM Ponta: MTO deficit of 1-1.5 pc will destroy all our economic accomplishments

Former Premier Victor Ponta has warned the future Government that a medium term objectives (MTO) deficit of 1-1.5 per cent would “destroy” his Government’s economic accomplishments.
“I hope that the new Government would understand the idea that to have, in 2016, an MTO deficit of 1-1.5 per cent will destroy all our economic accomplishments and future growth potential! With a budget that has as the only constraint a maximum budget deficit target of 3 per cent of GDP (as already built by Eugen Teodorovici) we would secure the economic growth of almost 4 per cent and maintain both the fiscal facilities and the justified salary hikes in the Health and Education sectors,” Ponta wrote on Facebook on Monday.
Likewise, the former Head of Government also claimed that “the petty-politics statements made on the occasion of the IMF delegation’s visit have to be forgotten,” and that they were made only in order to attack his Government.
MTO are basically a sum of precautionary rules that the states have to respect in order to avoid unforeseen pitfalls. They concern the deficit and debt, but against the backdrop in which they have to be lowered, for an economy with no solid economic growth this means less money for investment for example, something that affects precisely economic growth.
The MTO was assumed through the Fiscal Governance Treaty or the fiscal compact approved by the Government in February 2012 and signed by the President in March that year. The fiscal compact was signed by 26 EU member states, with the exception of the Czech Republic and United Kingdom.
The fiscal compact imposes a budget deficit of less than 3 per cent of GDP, a public debt level of 60 per cent of GDP, a structural deficit of 0.5 per cent of GDP for countries with a public debt level in excess of 60 per cent of GDP and of 1 per cent of GDP for countries with a public debt level below 60 per cent of GDP (Romania’s case). These targets are included within medium term objectives (MTO), a timetable that each country has set for itself.

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