A report by the European Commission recommends that Romania abandon the energy price cap by the end of 2023. The European Commission also addressed the aid that the Government grants to vulnerable people in the report.
Goodbye energy caps. Recommendation of the European Commission
All aid to vulnerable people will result in spending of 0.3% of GDP this year. The budget deficit could reach almost 5% of GDP, the Commission estimates.
The report recommends taking concrete measures to reduce the budget deficit, and one of these measures is the gradual elimination of the electricity and natural gas price ceiling.
“In recent years, fiscal policy has helped the economy absorb shocks. Important fiscal incentives, large-scale fiscal packages have been introduced in the last two to three years, initially to protect the economy against the consequences of the pandemic, and then to protect the population against the energy shock.
While some of these measures were necessary and contributed to the impressive resilience of Romania’s economy to shocks, especially during the pandemic, measures to support the economy during the energy price shock could have been better targeted (e.g. there is a universal gas cap on gas prices and most measures have been extended until the end of 2025).
In addition, most of the fiscal support measures were aimed at protecting households against various shocks, which helped to maintain firm private consumption and non-tradable sectors (construction, in particular).
(…) Nevertheless, some signs of overheating of the economy began to appear during the year, which led to a further widening of the current account deficit. The general public deficit remained high, at 6.2% of GDP in 2022, contributing significantly to the large current account deficit,” the European Commission report states.
Green energy, very important for Romania
At the same time, Brussels officials say that the impact of the energy shock on the economy should gradually diminish.
The Commission’s recommendation is to have a better absorption of European funds, i.e. the adoption of the benchmarks assumed in the PNRR.
Officials also say Romania should speed up the transition to a green economy.
