Convergence Programme for 2020: Government debt estimate at 40.9 pct of GDP in end-year

The share of gross government debt according to the European Union methodology will be 40.9 per cent of the GDP at the end of 2020, compared to 35.2 per cent in 2019, according to the Convergence Program for 2020 published by the Ministry of Public Finance ( MFP).

"Given the contraction of the economy of about -1.9 per cent, a depreciation of the national currency against the euro, the main currency in which public debt is denominated and a deficit calculated according to the EU methodology of over 3 per cent of GDP, as a result of the effects of the spread of the SARS-CoV-2 coronavirus, we estimate that the share of gross government debt according to the EU methodology will be 40.9 per cent of GDP by the end of 2020," the document said.

The government debt, according to the EU methodology, stood at 35.2 per cent of GDP at the end of 2019, well below the 60 per cent ceiling set by the Maastricht Treaty. Of the total government debt, domestic debt accounted for 18.9 per cent of GDP, and external debt was 16.3 per cent of GDP.

According to the representatives of the Ministry of Public Finance, in order to comply with the 60 per cent ceiling established by the Maastricht Treaty, based on the Law on Fiscal-Budgetary Responsibility No. 69/2010, with subsequent modifications and supplements, prudential intermediate thresholds for public debt were introduced, including automatic measures in case they are exceeded.

Thus, if the public debt is between 45 per cent of GDP and 50 per cent of GDP, the Ministry of Public Finance presents to the Government a report on the justification of debt growth with proposals to maintain this indicator at a sustainable level and if the public debt is between 50 per cent of GDP and 55 per cent of the GDP, a programme is proposed to reduce the share of public debt in GDP, which includes, but is not limited to, measures to freeze total expenditures and public sector salaries.

If the public debt is between 55 per cent of GDP and 60 per cent of GDP, in addition to the aforementioned measures, the Government will initiate measures to freeze the total social assistance expenditures in the public system and if the public debt is higher than 60 per cent of the GDP, in addition to these measures, the Government will initiate and implement a public debt reduction program with an average rate of 5 per cent per year, as a reference rate.

At the same time, in order to improve the management of public debt and avoid temporary pressures in securing sources of financing the budget deficit and refinancing the government's public debt, the Ministry of Public Finance intends to maintain the financial reserve (buffer) in foreign currency, which is available with the State Treasury, to allow the refinancing and liquidity risk management, currently the policy being to maintain this reserve at a level that covers up to 4 months of gross financing needs.