Fiscal Consolidation in Romania in the Wake of the COVID-19 Pandemic: How Much and How Fast?

Bogdan Dumitrescu and Cătălina Adriana Hândoreanu
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Cătălina Adriana Hândoreanu: Bucharest University of Economic Studies

A chapter in Digitalization and Big Data for Resilience and Economic Intelligence, 2022, pp 137-146 from Springer

Abstract: Abstract The economic shock generated by the COVID-19 pandemic and prior procyclical fiscal policies has left Romania with a severely deteriorated budgetary balance in 2020 and a rapidly rising public debt. Policymakers are confronted with difficult choices amid the need to balance restoring fiscal sustainability with an adequate response to the economic shock generated by the pandemic. By resorting to public debt equations, this paper projects the public debt evolution in Romania during 2021–2030 in light of the announced fiscal consolidation plans for 2021–2024 and afterward by proposing a continuation in the reduction of the budgetary deficit, albeit at a slower pace. In order to account for possible variations in the determinants of public debt, a sensitivity analysis is performed, considering both optimistic and pessimistic scenarios. The paper concludes that fiscal consolidation under the current plan for 2021–2024 and going further until 2030 at the proposed pace is essential for keeping public debt near prudent levels. Moreover, under a pessimistic scenario, even with a successful fiscal consolidation, considered to be represented by an exit from the Excessive Deficit Procedure in 2025 and a reduction in the budgetary deficit to around 1% of GDP in 2030, public debt in Romania could be at the end of the interval considered in the vicinity of the 60% threshold set by the Maastricht Treaty.

Keywords: Public debt sustainability; Fiscal consolidation; Public debt equations (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-030-93286-2_10

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DOI: 10.1007/978-3-030-93286-2_10

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