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Romania: Government allocates 2% of GDP to support local business environment, is that enough?

14th April 2020

The introduction of measures designed to diminish and control the spread of the COVID-19 infection has had a significant impact on business and the economy. In light of this, the Romanian tax authorities have introduced a series of financial measures to support businesses. MSI's Romanian accounting member Contabilul Tau provides an overview of the measures.

Initially, the Romanian Government took measures regarding the postponement of fiscal obligations during the state of emergency, up to a period of 30 days from its end, urgented the anticipated profit tax with quarterly payments; suspended or delayed the forced execution procedure for certain budgetary debts and extended certain deadlines for the restructuring plans applicable.

Moreover, the state supports the payment of 75% of the salary for the employees who lost their jobs as their employers had to partially or totally interrupt their activity, and implicitly have an inability to pay the wages.

Another set of measures were taken for small and medium companies which can contract loans guaranteed by the state for investments in a proportion of maximum 80% (for 120 months) or working capital (for 36 months), in the amount of 10 million RON per beneficiary.

Different viewpoints

Some business organisations and investors believe that the Government should intervene directly in the economy with an economic stimulus package worth about EUR 30 billion or 15% of GDP. The current measures are calculated at just 2% of GDP. This level is a minimum and Romania is among the countries offering the lowest government support in Europe.

From this point of view, the stimulus should include cash injections and forms of guaranteeing the credit of the economy, including for households/persons affected, as well as a significant increase of public investments – above the level initially budgeted for 2020. These investments can help restart the economy and create jobs work, both on the large infrastructure area, where Romania is still deficient anyway, and in the direction digitalisation for the public system, in order to continue cutting red tape and develop e-government projects.

The alternative viewpoint would say that these measures would destabilize the country further, in the context that debt accounted for 35.4 % of Romania’s Nominal GDP in Dec 2019.

In the face of these economic difficulties, some have advocated removing some of the ‘lockdown’ measures, letting business continue and restarting the economy. However, the healthcare system in Romania has over the past years been the subject of bad news, due to its poor infrastructure, corruption and lack of resources. So, it is clear Romania that is not in a position to take such risky action. Therefore, the economy remains at risk and more measures are expected.

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