The global economic and financial crisis triggered the adjustment of macroeconomic imbalances accumulated in Romania until the end of 2008. The current account deficit and the budgetary deficit were two major structural imbalances generating a high economic vulnerability that explain the magnitude of the economic contraction in Romania in the past two years.
In the pre-crisis period, the Romanian fiscal policy was pro-cyclical, largely driven by short-term political considerations, with little attention to the consequences for the sustainability of government finances on the medium and long run.
To restore the soundness of public finances, a major effort towards fiscal consolidation is required, backed by broad structural reforms to create the conditions for sustainable growth. In particular, restructuring the public expenditures to create fiscal space for public investment should be a major goal for the public policy. Although over the past two years much progress has been achieved in correcting the unsustainable fiscal policies, further efforts are required to consolidate the structural reforms needed to put the public finances on a sustainable path and to resume economic growth.
The Fiscal Responsibility Law, approved in March 2010, is designed to strengthen fiscal disciplineand should contribute to improving medium term fiscal planning. The law introduces several fiscal rules for better prioritizing expenditures and promotes a prudent approach to fiscal policy in good economic times in order to preserve the necessary fiscal space to stimulate the economic activity during recessionary times. The budgetsare limited to only two per year and new reporting requirements are introduced to raise the transparency of fiscal policy.
In this context, the Fiscal Council, as an independent authority established by the Fiscal Responsibility Law, aims to support the Government and the Parliament in designing and implementing the fiscal policy and to promote the transparency and sustainability of public finances.
In sum, the central objective of the Fiscal Council is to help create and strengthen a culture of fiscal and budgetary responsibility in Romania, including by increasing public awareness on the consequences of policy decisions on the sustainability of government finances on the long run.
Chairman of the Fiscal Council