Weekly Fiscal and Political Report, June 2-9, 2023

Political Updates

INTERNAL AFFAIRS

We have no conclusive news regarding the government circular this week either, given that the education strike continues. However, the government seems to be taking steps towards the demands of the education unions, as an emergency ordinance regarding the Executive's offer for striking teachers being presented in this week’s Government meeting. The normative act provides for an increase of RON 1,000 gross from June 1 this year, and starting from January 2024 this increase will be phased over a maximum of three years, with an increase next year of 40% of the remaining amount. “We agreed that there are still requests that must give confidence to all those who work in education that these measures will be implemented,” said PM Nicolae Ciuc?, regarding this ordinance. And, although according to PM Nicolae Ciuc?'s plans, he would have had a discussion with the education unions on the side-lines of this ordinance, the teachers consider that the Executive's offer does not adress debutante teachers as well. At the same time, the Government chose to adopt a Memorandum, in order to strengthen the government's guarantees regarding the prioritization of Education in the future salary scale and the use of the average gross salary in the economy as a reference system for the salary of the beginners/university assistants. According to the governors, the guarantees are also assumed at the level of the governing Coalition, whose leaders have appropriated them in a political statement.

In this context, the future prime minister and PSD leader Marcel Ciolacu gave guarantees that, if the teachers accept the Government's offer and stop the general strike, coalition negotiations for the rotation of prime ministers will be resumed. At the same time, the social democrat mentioned that the current protocol will be respected, although we don't know if this refers strictly to the ring road or to maintaining the same number of ministries, or the exchange of portfolios between PNL and PSD. President Klaus Iohannis also gave assurances about this political change, following a discussion with the leaders of the Coalition, all under the conditions of the end of the strike in education.

Interesting, however, are the discussions that emerged during this period between two opposition parties: USR and PMP, which are considering creating a right-wing alternative to the current governing coalition, in the context of next year's elections. Therefore, the presidents of the two parties, C?t?lin Drula (USR) and Eugen Tomac (PMP) discussed the 2024 elections and “the duty of the democratic opposition to offer Romania an honest alternative to the disaster represented by Marcel Ciolacu and Nicolae Ciuc?”. The decision of the two political leaders to consider such a political alternative is given by the reforms in the National Recovery and Resilience Plan (NRRP), by the European funds for investments, but above all by “the good of the community”. We do expect the party of former PM Ludovic Orban, `Force of the Right’, to also enter this political alternative, as it also self-proclaimed a right-wing party.

EXTERNAL AFFAIRS

The leaders of the "Bucharest 9" (B9) Format conveyed, through the Joint Statement adopted at the end of this week's meeting, that the NATO Summit in Vilnius in July must further strengthen the defence posture of the Alliance on the eastern flank, in order to deter and reject any opportunity for aggression. Thus, the signatories believe that this strengthening of the defence posture must include the advancement of the Forward Defence with robust, multi-domain and combat-ready forces in the field, including brigades in the land domain where necessary, prepositioning of equipment and stocks, rapidly available reinforcements, command and control and fit-for-purpose force structures and the improvement or expansion of relevant infrastructure, including the expansion of NATO's pipeline system. Additionally, during the B9 Summit, President Klaus Iohannis reaffirmed Ukraine's victory as the main objective of the B9 states. At the same time, the head of state emphasized Romania's "firm support" for Ukraine's Euro-Atlantic integration prospects, even by transforming the NATO-Ukraine Commission into a NATO-Ukraine Council, with a first convocation at the Alliance’s Summit in Vilnius.

Simultaneously, Minister of External Affairs Bogdan Aurescu met this week, with the Secretary General of the Organization for Economic Cooperation and Development (OECD), Mathias Cormann, on the occasion of the participation in the meeting of the Ministerial Conference of the OECD (MCM OECD). During the meeting, the head of the Romanian diplomacy reiterated the strategic nature of the objective of Romania's accession to the OECD, showing that the authorities in Bucharest are ready to implement the OECD recommendations and use the accession process as an incentive for continuing reforms and modernization. Minister Bogdan Aurescu also encouraged the level representation of the OECD in the Business Forum of the Three Seas Initiative (I3M), which will be hosted in Romania at the beginning of September 2023, underlining the relevance of the OECD's contribution to the Initiative, especially by providing expertise in the future, in order to strengthen the economic resilience of the I3M region.

Fiscal and Economic Updates

OVERVIEW

The complicated situation regarding the budget deficit as well as the low collection rate that the Romanian government is currently facing is becoming more and more visible, which is why last week we witnessed the resignations of the president of NAFA (ANAF) as well as the president of Customs, who were both removed by Prime Minister Ciuc?. Even so, although the Minister of Finance is probably the one to blame for the unrealistic way in which the State Budget for this year has been drawn up, an opinion shared by several experts in the field of finance and especially by the Fiscal Council since the end of last year, the Minister of Finance has so far remained unaccountable for this. In this context, Minister Caciu said at the end of yesterday's Cabinet meeting that there would be a budget rectification in the summer that would be quite complicated, with the tax-collecting institutions targeting bad-paying companies.

At the same time, the Minister of Finance referred to the NAFA's plan of measures should have been accompanied by two legislative measures, a restriction on installments adopted by emergency ordinance, and a second piece of legislation to facilitate the seizure of goods for which no documents of origin are held. Unfortunately, the legislative proposal on some measures to prevent and combat illegal economic activities has just entered the Parliament's approval circuit, without being presented to the Standing Bureau and sent for report, which means that this legislative initiative will most likely be adopted in the autumn, considering that the parliamentary recess will start on July 1.

Economy Minister Florin Sp?taru attended the Organisation for Economic Cooperation and Development in Paris this week. During the discussions, the Romanian minister stressed that Romania's accession to the OECD is an important objective for the governing coalition. At the same time, he highlighted the importance of removing barriers to investment and maintaining an open dialogue with the private sector to develop effective cooperation, as the Public-Private Partnership can eliminate possible negative aspects of policy, especially in the case of trade policy. Finally, as we are used to, Florin Sp?taru said that the current geopolitical context has affected the whole economy by disrupting international trade and supply chains.

ON THE RECOVERY AND RESILIENCE PLAN

These days, a new legislative initiative has been registered at the Senate, which provides for the abolition of the old-age allowance, calculated by reference to the number of months of mandate, for the members of the Romanian Parliament. The initiator, PSD MEP Simonis Alfred-Robert, believes that MPs should benefit, like all citizens, exclusively from a pension in the public pension system, based on contributions. The initiative will now be presented to the Senate's Permanent Bureau, from where it will be sent to the specialized committee or committees for a report. This initiative is intended to drive pension reform, more specifically Component 8, Milestone 215.