ECMA Congress 2015, Bucharest, Romania

‘If there is no progress in property freedom and corruption there will be no sustained growth in Romania’

By Jenny Eagle contact

- Last updated on GMT

Lucian Croitoru
Lucian Croitoru

Related tags: Tax

Romania adopted a revised Fiscal Code last month which will see a budget deficit of 2%, and a gradual cut in VAT, down to 20% as of January 2016, and to 19% in 2017.

The political parties also agreed to postponing the elimination of the 7 Eurocent supplementary excise duty on fuels until January 1st 2017, as the initial elimination date should have been 2016.

High level of corruption

Despite the changes, public money squandering and fiscal evasion are still, after years of reform, major weaknesses of the country’s public finances (tax fraud is estimated at more than 16% of GDP, mostly VAT), according to Erste Group​.  

Similarly, Lucian Croitoru, senior advisor, to the Governor of the Romanian National Bank, spoke at the ECMA Congress in Bucharest, last week (September 10,11) said Romania is still perceived as being a country with a high level of corruption.

Croitoru delivered a speech entitled: ‘Romania: Before the Crisis and Economic Perspective’ in front of 200 attendees.

If progress is not made in terms of property freedom and corruption both working together, there is no chance for a sustained growth for convergence in the long term in Roman​ia,” he said.

The country saw a rapid GDP growth between 2001-2008 of 6.5% on average, fuelled by large capital inflows, before the crisis​.

But, there was a sharp fiscal consolidation which brought the deficit from 9% of GDP in 2009 to 1.5% of GDP in 2014​.

The public debt to GDP ratio increased rapidly during the crisis, but it is still one of the lowest in the EU and is expected to stablilize to 3.5% in 2015, and 4.0% in 2016​.”

Fiscal deficit under 3% of GDP

Erste Group predicts the country’s tax for dividends will drop from 16% to 5%, applicable as of January 2016 and the impact on budget revenues is estimated at around RON 17bn for FY16.

While the cabinet will struggle to keep the nominal fiscal deficit under 3% of GDP next year, the structural budget deficit is expected to depart from the target agreed under the Fiscal Compact (1% of GDP +0.25pp for projects co-funded by the EU).

A new fiscal code was adopted last month and if all measures are implemented the budget deficit moves up at 4.2% in 2016 and 5.5% in 2017 given the Fiscal Code and envisaged wage increases (3.2% of GDP without wage bills in 2016 and 2.8% in 2017)​,” added Croitoru.

Romania is moving in the same direction, in terms of interest rates, as other countries, but everything depends on sustainability and what the government is going to implement​.”

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