ANALYSIS Romania’s public debt has doubled compared to 2015. What happens when debt exceeds the 50% of GDP threshold / How does Romania’s debt compare with that of EU countries

Elena Deacu iul. 21, 2021 0 comentarii

Romania’s public debt has crossed the threshold of 500 billion lei this year, amid increases in pension and salary expenditures in recent years, aggravated by pandemic costs in the last year. Therefore, Romania’s public debt will most likely exceed the key threshold of 50% of Gross Domestic Product (GDP) in July, according to Economedia calculations, which forces the Government to take a series of corrective measures. However, Romania still has one of the lowest public debts as a percentage of GDP among EU countries.

The PSD President Marcel Ciolacu declared on Monday evening that Romania “exceeded the degree of indebtedness of 50%” and that “the law requires that at this level everything is to be frozen”, he calling this situation “a widespread robbery”.

However, data analyzed by Economedia show that public debt has steadily increased in the recent years, even in 2017-2019, when the PSD was in power. Thus, Romania’s public debt has almost doubled in the last five and a half years, from 269 billion lei at the end of 2015, to 527.49 billion lei at the end of May 2021.

Romania’s debt has increased rapidly in recent years, in the context of growing deficits, amid continued increases in wages and pensions. These increases could not be sustained by increases in income, so loans were needed to pay them off. The Fiscal Council drew attention at the beginning of the year that the share of expenditures on salaries, pensions and social assistance reached 94.3% of the state budget revenues.

As a percentage of the Gross Domestic Product, indeed, the public debt decreased in 2017 and 2018, when the Romanian economy registered strong growth, of 7% and 4%, respectively, an the debt was reported against an ever larger GDP.

In contrast, public debt as a percentage of GDP grew the most rapidly last year, when it jumped to 47.3% of GDP from 35.3% of GDP in 2019. This sharp rise came amid the pandemic, when the Romanian economy contracted and the deficit reached a record level of over 9% of GDP, caused by expenditures to support the economy and the purchase of health and safety products.

In this context, Romania’s debt is getting closer to exceeding the key threshold of 50% of the Gross Domestic Product. Specifically, in April, public debt was at 49.9% of GDP and fell slightly to 49.7% of GDP in May.

Taking into account that in June the state borrowed about 4 billion lei, but repaid over 10.3 billion lei from a matured loan, the public debt will decrease this month to 49% of GDP, according to Economedia calculations, based on data on due payments published by It should be noted that this is a calculation that does not take into account smaller loans, such as those from the population or other overdue payments, such as those to international banks (EBRD, EIB, etc.).

However, Economedia’s calculations show that public debt could exceed the 50% of GDP threshold in July. This is because in July the state has to repay debts that are coming to maturity of only 618 million lei, which would decrease only a little the burden of debt. Instead, the Ministry of Finance has already borrowed 3.5 billion euros from foreign markets in July, i.e. over 17 billion lei. Therefore, the public debt could reach over 537 billion lei in July, or about 51% of GDP. Again, this is a rough calculation and does not take into account other payments or loans. The Ministry of Finance could also borrow money from the local market as well.

The government estimates, in the convergence program, that public debt will be 50.8% of GDP by the end of 2021, gradually increasing to 52.9% in 2022, to 53.3% in 2023, and then to pass, on a declining trajectory, to 52.4% of GDP in 2024.

What happens if the public debt exceeds the threshold of 50% of GDP

The Law on Fiscal-Budgetary Responsibility establishes a series of thresholds for public debt, which, if exceeded, come with a series of measures to be implemented by the Government, as follows:

  • if the public debt exceeds 45% of the gross domestic product, but is below 50% of the gross domestic product: the Ministry of Public Finance presents to the Government a report on the justification of the debt increase and presents proposals for maintaining this indicator at a sustainable level
  • if the public debt exceeds 50% of gross domestic product but is below 55% of gross domestic product:
  1. The government presents to the public and implements as soon as possible a program to reduce the share of public debt to the gross domestic product;
  2. The program shall include, but is not limited to, measures to freeze total public sector wage expenditure;
  • if the public debt exceeds 55% of gross domestic product but is below 60% of gross domestic product:
  1. All necessary measures shall be taken if the public debt exceeds 50% of gross domestic product;
  2. The government is initiating measures to freeze total social assistance spending in the public system;
  • if the public debt exceeds 60% of gross domestic product:
  1. The measures provided for if the public debt exceeds 55% of gross domestic product apply ;
  2. In addition to that, the government initiates and implements a public debt reduction program, as follows: public debt will be reduced by an average rate of 5% per year;

The governor of the Romanian Central Bank (BNR), Mugur Isărescu, recently said that he is not worried that the public debt has exceeded 50% of the Gross Domestic Product, because this has happened everywhere as a result of the pandemic. He specified that up to 60% he does not see major problems for Romania. “And the public debt should not exceed 60%, it would be better to stay below 55% and then decrease slightly,” he said.

Public debts of EU countries

Romania is not the only country for which the public debt / GDP ratio increased sharply last year, this phenomenon being encountered throughout the European Union and the euro area. In the EU, the public debt ratio increased from 77.5% of GDP at the end of 2019 to 90.7% at the end of 2020, while in the euro area it increased from 83.9% to 98.0%. Both areas recorded the strongest year-over-year increases in debt, as well as the highest level recorded, taking into account all available data.

A total of fourteen EU Member States reported a debt ratio of over 60% of GDP at the end of 2020: the highest was recorded by Greece (205.6%), followed by Italy (155.8%). ), Portugal (133.6%), Spain (120.0%), Cyprus (118.2%), France (115.7%) and Belgium (114.1%).

However, Romania ranks eighth in the top countries with the lowest public debt-to-GDP ratio.

The lowest ratios between public debt and GDP were recorded in Estonia (18.2%), Luxembourg (24.9%), Bulgaria (25.0%), the Czech Republic (38.1%), Sweden (39, 9%), Denmark (42.2%) and Latvia (43.5%).

At the end of 2020, public debt / GDP rates increased for all EU Member States compared to the end of 2019. The largest increases in debt to GDP were observed in Greece (25.1 percentage points), Spain (24, 5 percentage points), Cyprus (24.2 percentage points), Italy (21.2 percentage points) and France (18.1 percentage points). The lowest increases in debt / GDP rates were observed in Ireland (2.2 percentage points), Luxembourg (2.8 percentage points), as well as Bulgaria and Sweden (both 4.8 percentage points).

Translated from Romanian by Service For Life S.R.L.


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