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A very fragile government boat on a very stormy financial year

If we are to read between the lines of what the new Finance Minister, Mr. Florin Citu, has been saying over the last month, the state coffers are all but empty. The government's Pantagruelesque appetite for borrowing is a sign that the effects of the wage-led growth policies have been working. Or not. The fact that the Romanian economy recorded a 5% growth is the half full side of the glass. However, when you see that the year ends in a 4.3% budget deficit you realize that the glass actually contains poison. The unjustifiable salary rise in the public sector, with no connection whatsoever to a comparable increase in productivity, the unjustifiable rise in pensions (and 'special pensions' in particular) have brought public spending to breaking point. It is still a mystery how ex-Finance Minister Orlando Teodorovici was able to close the budget for 2019. Experts say that if he had been able to put it in writing and with matching numbers, it would have been just short of an accountancy miracle.
Leaving the past behind and looking into the future, the fact that the Finance Ministry plans to borrow two billion euro in December alone just to be able to pay salaries and pensions in a year with a supposedly 5% economic growth is frightening. All of a sudden, people have openly and calmly accepted that a five lei per Euro is not utterly unthinkable and such an exchange rate is not a matter of “if” but rather of “when”.
And the ”when” may come sooner than one had even dreamt of. In November, the Romanian National Bank spent more than 1.1 billion euro apparently on defending the national currency against a brief speculative attack coming from foreign traders. The “Night Raid” occurred during the night of 28th of November and sources say that half a billion euros was spent to fend-off the attack that saw the LEU jumping over the psychological 4.80 lei/euro threshold. 
Having said that, it is a bit of an irony of life that this time Mr. Citu is fighting such a battle on the other side of the fence. It was funny, to say the least, to hear Mr. Citu reassuring the markets that the national currency would hold firm against any speculative attack and that BNR had enough resources to fight it back.
However, at this point it is unclear whether this was just a one-off attempt by traders, or they were merely testing the BNR’s steadfastness as well as the depths of Mr. Isarescu’s pockets in case of an all-out assault against the national currency.
But what is really worrying is whether the current government will be able to foot the incre­ased pensions bill that the previous government has left behind. The fact that BNR’s chief economist, Valentin Lazea, was dispatched to a public event to make a clear statement that there was no way the government could pay a 40% rise in pensions in 2020 is the kind of wake-up call the institution had to convey before saying that it was the “private opinion of the speaker.”
At this particular moment, it is still a mystery how the current government will be able to balance the 2020 budget even within the 3.6% deficit apparently agreed with the EU. Govern­ment officials stated that the rise in minimum wage and pensions will go ahead in 2020 as promised by the previous government, which is an enormous financial undertaking, which will be hardly offset by the planned discontinuation of special pensions - with the exception of the military and magistrate schemes. Moreover, the announced cancelling the extra-excise on fuel will further diminish the government’s income, not to mention the less-than-acceptable performance of the tax office (ANAF).
There is a huge difference between the 2015-2016 government led by Dacian Ciolos and the current one: Mr. Orban’s government is a political government, not a “technocrat” one, in a very special year 2020, with both local and general elections, a year when no one wants to rock the boat. Taking into account that the boat has more financial holes than a Swiss cheese wheel, it would be a great feat of captaincy, if the current government could still be safely in the same Victoria Palace harbor, come next December. 

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