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The BNR document was published in the context in which the president of the PSD, Marcel Ciolacu, declared this Monday that the Social Democrats will vote for the increase in pensions.
It will happen on Tuesday, September 22, 2020, when Parliament will meet at 1:00 p.m., in plenary session, for the budget rectification.
We remind you that the decision on the increase in pensions was taken on Monday (September 21) by the Standing Tables of the Senate and the Chamber of Deputies meeting.
Previously, the budget committees of the two Houses issued an adoption report on September 16 with amendments to the budget rectification.
At that time, the most important amendment approved by the commissions and proposed by PSD was the one that repeals the article according to which the pension point is increased by 14%, as decided by the Orban Government.
Despite the explanations given by the liberals about the barriers that prevent them from increasing their pensions by 40%, PSD has managed to keep the law of the public pension system in force, which provides for an increase of 40%.
Raising the pension point by 40% would lead to an increase in the budget deficit in 2021 to more than 11% of GDP.
The NBR predictions are clear: it is not possible
Returning to the aforementioned report, the NBR recalls that the increase in pensions by 40% represents a high systemic risk by aggravating the state of the public budget.
The information was published on the website of the National Bank of Romania, in the report “Romania – Eurozone, Monitor”.
The cited source highlights that a 40% increase in the pension can aggravate the state of public finances and can lead to the destabilization of the economy.
Furthermore, the next effect would be an increase in the budget deficit in 2021 to more than 11% of GDP.
“We would have a reaction from the financial markets that could seriously affect the economy, making it difficult to return in 2021.
Instead of an orderly macroeconomic correction, for several years, we would be forced to a disorderly correction, very costly economically and socially, ”says BNR.
The document also takes into account the latest opinion, which states that it is essential to avoid a 40% increase in the pension point.
The aforementioned government institution points out that the increase proposed by the PSD would further destabilize the economy “in very difficult times”, when it is necessary to combat COVID-19 and mitigate the effects of the economic crisis.
The Fiscal Council does not recommend an increase in pensions
“It is mandatory to prevent the Romanian economy from entering a very dangerous spiral of crisis.
Coverage of financing needs for this year is largely guaranteed, but covering medium-term financing in the absence of a clear macroeconomic correction program could prove much more problematic.
It is hard to believe that financial markets will tolerate / accept, for a long time, high levels of budget deficits, even if the deviation from the requirements of the SGP, the EU fiscal rules, will remain suspended in 2021 ”, the report shows.
The specialists of the National Bank also show that another obstacle in the way of the PSD approach is the accession to the euro area and the entry into the Exchange Rate Mechanism – ERM2.
“ERM2 is not compatible with the violation of the acquis communautaire on Economic and Monetary Union which excludes large structural budget deficits and with considerable external deficits, as was the situation in Romania at the beginning of 2020”, the document reads.
“It is necessary to increase fiscal (budgetary) income to face future crises, to have a more robust public budget.
An increase in the tax base would help the macroeconomic correction in the coming years.
Such an increase would help a lot if the macroeconomic correction process is not accompanied by higher taxes and tariffs, which would be a suboptimal correction ”, the authors of the report also affirm.
The great macroeconomic challenge
Starting in 2021, the great macroeconomic challenge is correcting the budget deficit and macroeconomic imbalance.
“It is doubtful whether the markets will accept large budget deficits in the coming years. We must distinguish between permanent and specific expenditures, caused by the need to mitigate the effects of the epidemic.
If the economic recovery is more difficult in 2021 than expected and temporary support for economic activity is needed, it is likely that, in a judged European context, a correction will be dissociated in the structural component of the total deficit of non-permanent spending. .
Correcting the budget deficit and the structural deficit is necessary in the coming years if we are to keep things under control.
This correction implies a multi-year program, in accordance with the request of the EC, to bring the deficit closer to 3% of GDP.
One might think about the combinations between spending adjustments and higher fiscal / budgetary revenues, mainly to increase the tax base. However, the impact will be significant, simultaneously on supply and demand ”, is announced in the NBR document.
Correction must not be brutal
This is what the authors of the report say, who also recommend that this correction be prolonged for several years.
In turn, economists also believe that “a brutal correction would plunge the economy into big trouble.”
“The correction is also necessary to limit external deficits, especially since in 2019 the phenomenon of twin deficits was prominent.
There must be clear and credible signals that we want an orderly correction. The correction program must be coordinated with the EC to agree on the schedule and planned measures.
The correction step depends on the increase in tax / budget revenue. Expenditures can be rationalized when waste is high, the state apparatus must be restructured; The increases in income financed from the public budget should be limited in the coming years, ”the document states.
What does the depreciation of the course show?
Economists call the attention of those who see the exchange rate depreciation as the decisive path to macroeconomic correction that certain aspects must be taken into account.
Runaway depreciation can destabilize the economy, “even through a runaway lion.”
“In Poland and Hungary, in the Czech Republic, the issue of the exchange rate (depreciation) is not as sensitive as in our country.
In Romania, the correction of the aggregate demand, of the external imbalance, cannot be carried out essentially by depreciation;
An adjustment of the budget deficit is necessary, albeit gradually.
If we want to take the step of entering MCS2, it is mandatory to have a sustainable macroeconomic correction once the impact of the pandemic has been overcome.
This correction implies, among other things, an increase in budgetary revenue (a broader tax base through transparency, the declaration of all income and assets, the elimination of exemptions, the firm fight against tax evasion), the rationalization of spending.
With an intense absorption of European resources we can support the structural reforms and the necessary macroeconomic correction.
We must limit external deficits, take into account the competitiveness of the economy, especially of the tradable sectors, ”the report shows.
source: Agerpres
