Finance Minister claims that the VAT increase saved the country from a financial crisis

Finance Minister Alexandru Nazare claims that the VAT increase measure at the beginning of July was decisive for maintaining the country's rating and avoiding severe economic effects. Without this decision, our country would have been forced to raise VAT by four points, with direct consequences on inflation, exchange rate and purchasing power.

• Country rating - the key to financial stability

Romania passed a critical test on international financial markets this summer. In mid-August, the Fitch rating agency reconfirmed the investment grade for the Romanian economy, an essential decision for maintaining investor confidence and for access to long-term financing. According to the Finance Minister, this reconfirmation would not have been possible without the VAT increase by two percentage points, decided in the first weeks of July. "If we had not taken that measure, Fitch would not have confirmed our rating. The consequence? We would have had to increase VAT by four points. We would have been in a much more complicated situation today," Nazare said on a TV station.

• Risk of losing the status of a safe country for investment

Nazare drew attention, in his intervention, that the loss of the investment grade would have triggered a chain of negative effects. First of all, about 20 billion euros invested by international funds in Romanian government bonds would have had to be withdrawn, because many financial institutions have strict mandates to invest only in savings with an investment rating: "The impact would have been devastating. We would have witnessed a sharp increase in financing costs, a strong depreciation of the leu and, implicitly, accelerated inflation. The last time, in 2009-2010, the depreciation of the exchange rate was 20%.

• Budgetary rectification under the sign of prudence

The minister explained that, thanks to the confirmation of the rating, Romania managed to carry out a budgetary rectification that covered a significant part of the current needs of the ministries. However, Nazare specified that public money is managed prudently, and the period in which each ministry received "large sums" for rectification is over. "The state treasury is not empty, but we spend very carefully. We no longer have the same room for maneuver as in the past. Resources are allocated with priority to essential projects, where the impact is major", declared the minister.

• Investments, protected from cuts

Despite budgetary pressures, the official assured that the level of public investments is not affected. According to him, the amount earmarked for investments remains at 150 billion lei, even in the context of fiscal adjustments. "Investments are the key to economic recovery and cannot be sacrificed. On the contrary, they are protected", emphasized Nazare.

• A criticized but necessary decision

The VAT increase is traditionally one of the most sensitive fiscal measures, with a direct impact on prices and consumer spending. Although the decision sparked discontent, the minister insists that the alternative would have been much more painful for the economy and citizens. "It was an unpopular measure, but it represented a shield against serious economic effects. Without it, today we would be talking about losing the rating, about a currency crisis and about doubling the fiscal effort," concluded Alexandru Nazare.

The two-point VAT increase was a difficult decision, but one that saved Romania from deep financial destabilization, the authorities claim. The government is counting on the fact that this temporary sacrifice will strengthen the country's credibility and keep the doors open to foreign investments, essential for financing the economy.