Budget revision the new battleground between Romanian government and president

Budget revision the new battleground between Romanian government and president
By Iulian Ernst in Bucharest September 5, 2018

Romania’s President Klaus Iohannis announced on September 4 that he suspended the Security Council meeting due to take place that day, thus blocking the government’s attempt to make the first budget revision this year.

Iohannis specifically accused the government of cutting the funds earmarked for national security institutions, despite increasing total public spending. He invited the executive to explain the logic of the revision.

In response to the president’s decision to suspend the Security Council and freeze the budget revision, Finance Minister Eugen Teodorovici accused Iohannis of blocking the government’s activity. Wages in several public sectors are at risk and social benefits including maternity benefits are at risk as well, Teodorovici stated. The country’s development is also stalled due to the president’s decision, he claimed. 

President Iohannis again accused the government of using the budget as an instrument against the ruling coalition’s political rivals. Under the budget revision, the government plans to cut the funds earmarked for the presidency, the foreign affairs ministry and the intelligence services (SRI). 

This comes amid an on-going conflict started by the ruling coalition of the Social Democratic Party (PSD) and the Alliance of Liberals and Democrats (Alde) against the so-called “parallel state” (or “deep state”) that they claim control the SRI, the anticorruption bodies (mainly the National Anticorruption Directorate, DNA) and the presidency. 

The deadlock at the Security Council should not, in principle, cause any hiatus in the government’s financial operations since the executive can at any moment ink and have endorsed by the Security Council decrees on specific issues related to economic sectors. The budget cuts that prompted the political conflict are rather small (under RON200mn, 0.02% of GDP). But the incident could be used by the government to explain the fiscal slippage (above 3% of GDP) expected for the year.

The political dimension of the conflict exceeds its economic impact. Nonetheless, the fiscal policies conducted by the incumbent ruling coalition have constantly been risky and unpredictable since it came in office in early 2017. Iohannis has constantly urged the government to follow more predictable and sustainable policies, and the September 4 decision comes in line with a longer history of conflicts over this topic. Recently, fiscal policies have tended to accommodate lower growth scenarios, but they remain highly loose and are expected to create wide deficits. More than the widening deficits, the inefficient use of the scarce funds earmarked for public investments (versus more funds earmarked for public wages, pensions and social benefits) pose more problems to the further growth outlook.