Governor Mugur Isărescu sent a strong message on Tuesday to the future Government: Romania does not need new taxes, but nor does it need tax cuts, at a time when the country is trying to regain fiscal credibility in front of markets and rating agencies.
At the same time, the BNR chief firmly rejected scenarios regarding a potential Romanian state default, which he considers „catastrophic” and harmful to the economy.
The statements were made in a press conference organized by the National Bank of Romania, against the backdrop of negotiations for the formation of the new Government and the increasingly intense debates about the fiscal measures necessary to reduce the budget deficit.
"I don't think we need new taxes"
Asked what the future Executive should do – increase taxes or, on the contrary, reduce the tax burden – Mugur Isărescu said that the solution is not to introduce new levies.
"Not new taxes, I don't think we need new taxes. Continuing what is currently in place... I'm entering the fiscal domain, and it's not really good for a Central Bank, but I can say this due to the position I've held, as a former prime minister. And an adjustment was made back then. So, no new taxes. Continuing at the current level, yes," stated the BNR governor.
However, Isărescu categorically ruled out the idea of tax cuts before Romania achieves its assumed fiscal targets.
"Tax cuts, under no circumstances until we reach our objectives. So, first and foremost, that would create a major credibility issue. 'What are these Romanians doing?' That's what they're saying now. We've been talking to rating agencies, creditors for so many years. They play up and down," Isărescu emphasized.
Warning for the political class: Markets can penalize Romania
The BNR chief warned that even contradictory discussions in the public sphere can affect investor confidence and complicate fiscal correction efforts.
"In the current moments, we must be very serious in understanding that this fiscal correction is a necessity," said Isărescu.
He cautioned that without coherent measures, financial markets could react harshly, and the costs for Romania would become even higher. "Otherwise, the markets will penalize us, and we will have to tighten our belt much more," Isărescu pointed out.
The statements come at a time when Romania continues to borrow at some of the highest interest rates in the region, and the pressure to reduce the budget deficit remains high.
Isărescu rejects the insolvency scenario
The BNR governor also commented on statements appearing in the public sphere regarding the risk of Romania reaching insolvency, including regarding salaries and pensions. "We are not there. I do not share this view. It is catastrophic and does not do us any good," Isărescu stated.
He explained that a cessation of payments normally refers to a state's inability to honor its external obligations, and Romania is not in such a situation. "We do not have such a situation, and that is why I have insisted on the level of reserves. It is an adequate level of international reserves," said the BNR governor.
Isărescu specified that external debt should not be simplistically compared to foreign reserves, as a significant portion of the debt is refinanced and does not come due simultaneously.
"Internally, a state copes"
The BNR chief acknowledged that internal difficulties may arise if the budgeted revenues are not realized or if expenses exceed the forecasted level, but he believes that the state has tools to manage such situations.
"Internally, a state copes, right? It borrows, tightens the belt elsewhere. I don't see any significant problems from this point of view," Isărescu stated.
He also made an ironic reference to the difficulty of reducing the public sector apparatus, in the context of discussions about reforms in the public sector.
"Have you seen how difficult it is to lay off ten people from a structure? Processes, court decisions in a few years, and you end up paying three times what you thought you saved," declared the BNR governor.