Convergence programme of Romania, 2006-2009 - Main contents

EN

Official Journal of the European Union

C 89/19

On 27 March 2007 the Council examined the convergence programme of Romania, which covers the period 2006 to 2009.

Romania enjoyed strong economic growth over the past five years, but its GDP per capita (expressed in PPS) is still low at 34 % of the EU-25 average in 2005. Therefore, the scope for catching up remains ample and represents Romania's overriding challenge for the medium and long term. In 2001-2005 macroeconomic stability improved, as reflected by the sharp and sustained decline in inflation and the consolidation of public finances. The average inflation rate stood at 6,6 % in 2006.

The macroeconomic scenario underlying the programme envisages that real GDP growth will decelerate progressively from a well-above potential rate of 8 % in 2006 to a still sustained 5,9 % in 2009. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions. The programme's projections for inflation appear to be on the low side since they assume a sustained deceleration of credit and private consumption growth which may not materialise. Unlike the programme, the Commission's services 2006 autumn forecast projects a further widening of the external deficit in 2007 and 2008 on the basis of imports that continue to outpace exports as a result of strong private consumption and investment.

For 2006, in the Commission services' autumn 2006 forecast estimated the general government deficit at 1,4 % of GDP against a target of 0,7 % of GDP set in the December 2005 pre-accession economic programme. The convergence programme estimates the deficit at 2,3 % of GDP. The slippage compared to the original target reflects significant additional expenditure, notably current spending partly due to a reallocation of unspent investment expenditures, which more than offset stronger revenue growth than expected.

The main goal of the programme is to pursue fiscal consolidation so as to reach the medium-term objective of a structural deficit (in cyclically-adjusted terms net of one-off and other temporary measures) of 0,9 % of GDP in 2011, i.e. beyond the programme period. The programme targets a small reduction of the general government deficit from 2,3 % of GDP in 2006 to 2 % of GDP in 2009, after a rise to 2,7 % of GDP in 2007. The primary deficit is expected to follow a similar path and to stand at 1 % of GDP at the end of the programme period.

The adjustment, which is marginal and back-loaded is done through an increase in the revenue-to-GDP ratio that is somewhat higher than the increase in the expenditure-to-GDP ratio (almost 4 percentage points compared to 3

percentage points). On the revenue side, most of the increase comes from taxes (especially in 2007) and from ‘other revenues ’(presumably associated with EU funds inflows). The rise in the expenditure ratio stems to a large extent from a very significant increase in public investment, which is planned to more than double as a percentage of GDP due to an assumed substantial increase in the absorption of EU funds. Compared with the December 2005 pre-accession economic programme, budgetary targets are far less...