The Presidency has endorsed Romania’s budget for 2022. It is one of the first times the country has had the budget approved for the following year. So far, the budget for the current year would’ve been approved in late March or even May.
By studying it, we can realize how much the politicians and the economists see the country grow in 2022. Apart from that, we can also consider the opinions of the leading voices in the economic field to estimate the course of the economy and social development.
Romania’s budgetary deficit in 2022, projection: 5.84% of GDP
This is the first concerning news: Romania expects its budgetary deficit to rise to 5.84% GDP. For the record, in January-November 2021, Romania registered a deficit of 4.70% of the GDP. It’s already too high, but the politicians expect it to exceed even more in 2022, to 5.80%.
Romania is currently spending more than it produces. This leads to astronomical sums borrowed from the external markets. The Romanian Government ‘succeeded’ in increasing the external debt to more than 130 billion EUR. The news is that 23 billion EUR were borrowed only during the last two years.
From this perspective, it is expected for the Government to borrow even more in 2022 to cover the budgetary deficit.
Romania’s economic growth in 2022, projection: 4.6% of GDP
This is another concerning news. Romania’s budget is drafted on a projection of 4.6% growth in 2022. Even though this is good growth, let’s not forget in 2021, Romania had a growth of close to 7%. The rhythm is decreasing, though the level of production will increase.
The GDP is estimated at 301 billion USD or 266 billion EUR. It’s the first time Romania’s GDP will exceed 300 billion USD in history.
The bad news here is that the increase in GDP will be less than the projected inflation.
Romania’s inflation in 2022, estimation: 5.8%
Romania is already facing steep inflation of close to 5%. The economists estimate that inflation will increase even more in 2021 by an additional 5.8%.
With most of the salaries frozen, Romanians expect a tough 2022 ahead. Their earnings will diminish in purchasing power, while the prices will skyrocket.
An important warning to take into account here. The exchange rate could pose additional pressure and contribute to the fall of the Romanian currency even more.
Romania’s exchange rate in 2022, estimation: 5.11 RON for 1 EUR
This estimation has to be seriously taken into account by business owners and financial institutions. And there’s more to it than that.
In December 2021, Nomura Investment Bank, which has developed the Damocles Index to analyze the risk of exchange rate failure in certain countries, issued a warning for four countries: Egypt, Romania, Turkey, and Sri Lanka.
If the Turkish scenario replicates in any of these countries with that sudden drop of the Turkish lira, that could wreak havoc in the economy.
Besides, this 5.11 RON for 1 EUR is not something to be met at the end of 2022. This is an average exchange rate over the next 12 months.
Tough times ahead for Romania in 2022
With galloping inflation, a budgetary deficit exceeding the agreed limit, and an exchange rate under heavy pressure, Romania will face tough times in 2022. Suppose we add the expected massive street protests for higher salaries and better work conditions, thus putting additional pressure on the budgetary deficit. In that case, we have a clearer view over the following year.
On top of that, in April 2022, there will be the full liberalization of energy and gas prices. No more governmental help, no more subsidies. This will undoubtedly hit the majority of the people living in the country.
The hope comes from a potential increase in foreign investments and tourism revitalization, a sector heavily hit in the last years. Moreover, by keeping the workforce in the country, or even better, by bringing back some of the Romanians working abroad, the Government could help the economy even more.
The risk here is for the coalition not to agree on the critical points of the public policies. The current Governing coalition in Romania is a strange mixture of socialists and liberals. Thus, the debates over public policies could prolong more than needed, and the adoption of suitable measures for the economy could be delayed beyond a certain reasonable point.
Either way, 2022 will be a challenging year for the economy and the people. Let’s hope for the best, despite the difficulties.