Prime Minister Ilie Bolojan said inflation should stabilise in the second half of the year, with the effects of economic contraction likely to persist until then.

„At least until mid-year, the measures linked to economic contraction will still be present – that is the reality. From the second half of the year, things should begin to pick up again. (…) Inflation will stabilise, it will move into a stable range and the economy will adjust to the new level of spending, which reflects the reduction in borrowing and a relatively stable level of investment,” the prime minister said on private broadcaster B1 TV.

He added that measures such as reducing spending in the public administration and improving revenue collection are also expected to start producing results.

Bolojan also said that support will be granted to people with low pensions, a measure included in the draft budget. Other forms of social support, however, will be financed from European funds.

„For other proposals related to social protection, we do not have much fiscal space unless we cut investments or reduce other expenditures. The proposal we made is to allocate funds from the European Social Fund, because we have the possibility to support various social programmes there – for example those targeting children. This means that the ministries of European Projects and Labour must work together in this direction,” Bolojan said.

The prime minister reiterated that in previous years spending had been carried out without sufficient coverage, which generated ‘huge’ deficits, led to a rapid increase in public debt and pushed interest costs to ‘very high’ levels, now amounting to around 3% of GDP.

He added that the draft budget, which has now been finalised, provides for reducing the deficit to 6.2% of GDP, down from 7.7% last year.

„This is a commitment Romania has undertaken and it is the only solution – not because others force us to do it – to reduce both the percentage cost of interest and the overall interest burden, in order to free up fiscal space in the coming years,” Bolojan stressed.

He also noted that Romania must complete the absorption of the National Recovery and Resilience Plan (PNRR) funds this year, amounting to 3.7% of GDP, or more than 10 billion euros, in addition to the required co-financing.

„All investments planned for Romania this year exceed 7% of GDP. The challenge is to reduce the deficit while maintaining a very high level of investment, otherwise we risk losing European funds. That leaves only limited room for manoeuvre, because the rest is needed to pay interest and ensure ministries can function. That is why we proposed, on the one hand, administrative reform to reduce spending, and on the other hand an increase in local taxes to provide local authorities with additional revenues so they can finance their projects,” the prime minister added.

AGERPRES