BUCHAREST, Aug 30 (Reuters) – Romania has asked Brussels to accept a higher deficit target of 5.5% of GDP for this year, nearly 1 percentage point higher than initially agreed, due to unforeseen energy and military expenses, Finance Minister Marcel Bolos said.
The European Union member state, which had set its deficit target at 4.4% of GDP this year, has committed to gradually lowering its fiscal shortfall to below the EU’s 3% threshold by 2024.
But unforeseen expenses stemming from taking in Ukrainian refugees, a higher defense budget and the capping of energy prices for households and industry have driven up fiscal spending, making the target “nearly impossible to achieve,” Bolos told private television station Digi24.
Bolos was in Brussels to negotiate new targets with the European Commission, and to present government plans to cut spending and change some taxes to boost tax revenue.
Fiscal consolidation is key to ensuring Romania continues to receive EU recovery funds, which are underpinning infrastructure investment and economic growth.
“I have presented the causes, both domestic and external” for why the 4.4% of GDP target was impossible to achieve, Bolos said. “A … fair target for Romania would be 5.5% of GDP.”
Ratings agencies have said the government’s ability to lower the fiscal shortfall was a key driver of its sovereign ratings. Fitch Ratings, Moody’s and S&P Global Ratings all have Romania on their lowest investment grade.
The ruling Social Democrats and Liberals have yet to agree a final package of spending cuts and tax hikes. Bolos said the measures would need to be approved in September to ensure Romania continues to receive EU funds.
The country has 46 billion euros worth of development funds allotted for 2021-2027, as well as 28 billion euros worth of recovery funds.
Romania holds presidential, general, local and European elections in 2024.