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April 10, 2021

FinMin Citu: Romania will avoid technical recession, economic contraction will be smaller than estimates

Romania will avoid technical recession and will have a contraction of the economy smaller than the estimates made by the rating agencies, the European Commission (EC), the International Monetary Fund (IMF) and the banking institutions, due to the prompt and efficient use of economic policies, says the Minister of Public Finance, Florin Citu.

“All economies have been hit hard by this crisis. All countries have responded by raising budget deficits. (…) All central banks have brought interest rates to zero because they know very well that now zero or negative real interest rates stimulate economic growth in the medium and long term. All countries will have an economic contraction in 2020. Most will have a technical recession. Romania will avoid the technical recession and it will have a smaller contraction in the economy than the public estimates made by the rating agencies, the EC, the IMF, banking institutions, etc., due to the prompt and effective response of economic policies, but we will still have an economic contraction in 2020, which means we will have much lower budget revenues than estimated, even if they will be similar to those of the previous year,” Florin Citu wrote on Facebook on Saturday.

He said Romania will see an economic recovery in the third quarter of the year, a basic scenario that the National Bank of Romania (BNR) is also working with, and this means economic growth in 2021.

The head of Finance reiterated that the global economy is going through the hardest period in the last hundred years, given that the shock suffered by all economies is double. “A prolonged health crisis has turned into an economic crisis. All countries, without exception, are affected by the two crises. The recovery depends very much on how governments, especially the monetary and fiscal policy mix, respond. Almost everywhere, the response has been similar, injecting liquidity into the economy through both fiscal and monetary policy. On the fiscal side, the EU deficit has risen by about 8 percentage points, from 1 per cent on average up to 9 per cent. In most countries, this has meant an increase in budget expenditures by about 6 or 7 percentage points,” Citu explained.


Romania registered the smallest increase in the budget deficit compared to the initial estimates


The economic crisis meant higher budget expenditures for all countries, but Romania registered the smallest increase in the budget deficit compared to the initial estimates, Minister of Finance Florin Citu stated on Sunday.

“We have promised a prudent, responsible and non-inflationary long-term fiscal policy. We have succeeded so far. The economic crisis has meant higher budget expenditures for all countries. All budget deficits have exploded. However, Romania has the smallest increase in the deficit. budget compared to the initial estimate,” Citu wrote on his Facebook page on Sunday.

According to him, the benefits for all Romanians of the prudent fiscal policy implemented are the lowest need for loans to cover the budget deficit (Poland, for example, must borrow an additional 9.3 per cent of GDP in 2020), more room for manoeuvre in 2021 if this economic and health crisis continues, less pressure on future interest rates and budget revenues (less pressure on the finances of future generations), less pressure on future price increases and smaller risks of eliminating the private sector through too much state intervention economy.

“The liberal economy is developing with a strong private sector in the economy. But the most important thing is to succeed, with a much smaller budgetary effort than the rest of the EU countries, to recover economically in the third quarter of the year and avoid a technical recession. This was my objective from the very beginning and I believe that we can do it,” said the Minister of Finance.

The execution of the general consolidated budget in the first six months of 2020 registered a deficit of 45.17 billion lei (4.17 per cent of GDP), according to data published by the Ministry of Public Finance.

“More than half of the deficit, respectively 23.04 billion lei (2.13 per cent of GDP), is generated by the amounts left in the economic environment through the fiscal facilities and exceptional expenditures adopted to combat the effects of the COVID-19 epidemic,” it is specified in the MFP report on budget execution.

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