Romania’s government plans to cut subsidies and put off a planned pension rise as it seeks to keep the budget deficit as close as possible to the 7%-of-GDP target for this year, said Prime Minister Florin Citu ahead of the publication of the 2021 budget. 

The government has been seeking to rein in spending to keep the ballooning deficit under control after several years of populist pro-cyclical fiscal policy under previous governments. 

This severely hampered the ability of the government to support the economy during the coronacrisis last year; a report from rating agency Moody’s says Romania's government extended the least fiscal support to the private sector among the Central and Eastern European countries in 2020. 

The government led by the National Liberal Party (PNL) that took office at the end of December has now abandoned plans to raise pensions as of January this year and will cut public expenditures such as subsidies to state companies, subsidies for students’ railway transport, holiday vouchers and bonuses in the public sector. 

The deficit target remains at 7-7.1% of GDP, announced Prime Minister Florin Citu, as the government prepares to publish the budget for consultations on February 9 or 10. 

Citu and PNL leader Ludovic Orban have announced measures to consolidate the public deficit from nearly 9.9% of GDP last year, which allowed the opposition to speak about an “austerity budget”.

Citu commented on subsidies for state-owned companies, which will be lower this year. The government will extend subsidies only to state companies that are profitable, Citu said (yet it remains unclear why such companies would need subsidies). He added that those that are not profitable would need to come up with a restructuring strategy to get subsidies.

 

The government has received no such restructuring strategy from the troubled state-owned companies, despite warning them about the need to do so as a prerequisite for getting subsidies, Citu added.

Separately, Orban announced a series of measures with a positive impact on budget consolidation yet likely to generate social tensions: pensions will increase no sooner than January 2022 (and even then, only in line with inflation and some of the real rise of the average wages), there might be fewer holiday vouchers for employees in the public sector and students might no longer be allowed to travel by train for free as before.

Romania's government will implement law 263/2010 regarding increasing pensions and will carry out the next indexation (after the 14% increase as of September 2020) no sooner than January 2022.

The pension rise previously announced for January 2021 (8.1% according to the PNL’s ruling strategy) was apparently skipped.

There will be no pension hike during 2021, announced Orban.

Even in January 2022, pensions will increase only by the inflation rate plus 50% of the real increase in the average gross wage calculated for the previous year (2021), according to law 263/2010 cited by the Liberal leader.

In the ruling strategy published by the PNL before the general election in December, the senior ruling party promised a 46% rise of pensions by 2024, including the 14% rise in September 2020 and an 8.1% increase in 2021 (which has now been skipped, according to Orban’s statements).