BNR's stern warning: public debt sustainability, major risk for the national economy

The Governor of the National Bank of Romania, Mugur Isărescu, issued a clear warning yesterday regarding the direction of economic reforms and the risks associated with current fiscal policies. In a message directly addressed to the government, he stressed that public debt sustainability and fiscal credibility must become strategic priorities.

"For Romania, the issue of debt sustainability is more pressing than ever. The credibility of Romania's fiscal policy plays a crucial role in maintaining investor confidence, controlling borrowing costs and ensuring long-term macroeconomic stability," declared Mugur Isărescu, during an event hosted by the BNR, where the study "Debt sustainability and fiscal risks in the EU" by Jeromin Zettelmeyer, director of the Bruegel Institute, was presented.

The BNR Governor warned that in a global economic landscape marked by the legacy of the pandemic, the energy transition, geopolitical tensions and rising capital costs, Romania can no longer afford fiscal incoherence or the postponement of reforms. Mugur Isărescu stated that understanding and managing fiscal risks are essential to protect the development and resilience of the national economy.

Although the percentage of government debt reflected in gross domestic product has increased since 2020, both globally and at the European level, for now there are no reasons for concern regarding the sustainability of government debt, even if some states - France, the United Kingdom, the United States - have exceeded the 75% threshold set by the International Monetary Fund as the maximum level for that sustainability, said Jeromin Zettelmeyer in the presentation of the study conducted by the Bruegel Institute. However, Zettelmeyer argues that certain fiscal adjustments are needed, which have different typologies depending on each European state. Thus, if in France the deficit adjustment must be 3.7%, which would be within the rate of adjustments applied by that country since 1970, in Romania a fiscal adjustment of 8.5% is needed, which exceeds the 3% adjustment level applied by the authorities in Bucharest from 1970 until today. Especially since, unlike the period 1990-2007 when our country was on the positive side of the coefficient regarding late payments from the state budget, compared to the period 2008-2024 when we moved to the negative side, where we continue to remain due to the increase in budget expenditures by the central authorities, stated Jeromin Zettelmeyer.

Under these conditions, Romania remains the only member state of the European Union that needs the largest fiscal adjustment, approximately 8% of Gross Domestic Product, and the plan agreed with the European Commission to lift the excessive deficit procedure we are in will last more than 7 years and will depend on the financing of our country at acceptable interest rates by the international financial markets, said the director of the Bruegel Institute. He mentioned that a positive point is the fact that the level of government debt in our country amounts to 55% of GDP, unlike Greece - 154% of GDP, Italy - 135% of GDP, France - 113% of GDP, Spain - 102% of GDP and Hungary - 73% of GDP.