Romania

II - Changes to the Budgetary Process

Budgetary process   
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Romania.

The Romanian state budget is adopted on an annual basis by the Parliament acting by simple majority on the proposal of the Government.

According to Article 138 of the Romanian Constitution, the national budget includes the state budget, the state social security budget and the budgets of the administrative-territorial units. Yearly, by August 15, the Government sends the Parliament the fiscal strategy for the next three years together with a legislative proposal on spending ceilings obligatory for the reference budgetary year and the next two years for approval (Even if the Parliament should adopt the law on budgetary ceilings before the budget laws, in practice all the laws are adopted on the same date). The state budget together with the state social security budget proposal drafted by the Government is forwarded to the Parliament by November 15. The Parliament approves the state budget laws by simple majority. In case the budget law is not approved by mid-December, the Government must demand the examination of the budget law in the emergency procedure. If the Parliament fails to reach an agreement on the budget laws three days before the start of the next budgetary year (by December 28) the old budget is applied until the adoption of the new budget. As well, the Constitution of Romania provides at Article 138 (5) that no budgetary expense may be approved without a pre-established financing source (section IX.4 below).

Law 500/2002 on public finances, as amended in 2013 (the ‘Public Finances Law’) further regulates the state budget and the state social security budget.[1] The budget of the administrative territorial units is drafted and approved on an annual basis on the local level, according to the principle of local fiscal autonomy, as regulated by Law 273/2006 on local public finances (the ‘Local Public Finances Law’).[2] Since 2010, the state and local budget proposals must take into consideration and adapt accordingly the national fiscal strategy pursuant to Law 69/2010 on fiscal-budgetary responsibility (the ‘Fiscal Responsibility Law’, see section II.2 below).[3]

The three legal frameworks are closely inter-connected. On the one hand, the Public Finances Law (law 500/2002) and the Local Public Finances Law (Law 273/2006) establish the general rules of state and local budgets formation, administration, elaboration, execution, actors involved and their responsibilities (Article 1 thereof). On the other hand, the Fiscal Responsibility Law (Law 69/2010) complements as of 2010 both the Public Finances law and the Local Public Finances Law, establishing the medium and long-term fiscal discipline principles and laying down the multiannual fiscal framework and spending ceilings within which the latter two operate (Article 1, Fiscal Responsibility Law).

The budgeting system of Romania resembles the Italian and French ones.[4] The Government, through the Ministry of Public Finance is the institution responsible for the realisation and coordination of national fiscal budgetary policy. The actors in charge of budgetary execution are organised in a three-layered system and are classified in primary, secondary and tertiary ordinateurs (credit holders). The primary ordinateurs are the actors designated by law to dispose of and/or approve the public funds expenditure. On the central level the primary ordinateurs are usually the heads of Ministries and other central public or autonomous authorities, whereas on the local level the primary ordinateurs are the Mayors and Presidents of local councils. The secondary ordinateurs are the heads of public institutions with legal personality in the subordination of the primary ordinateurs, while tertiary ordinateurs are the heads of public institutions with legal personality in subordination of primary or secondary ordinateurs. The primary and secondary ordinateurs are entitled to assign and use the budgetary resources, whereas the tertiary ones may only use the funds allocated.[5]

The budget process combines a top-down and bottom-up budgeting approach.

First the Government, through the Ministry of Public Finance, centralises the overall goals of the national budgetary frame, based on fiscal policy and macroeconomic and social estimates on the reference budgetary year and next three years (t- the reference year and t+3) provided by the National Prognosis Commission. The National Prognosis Commission is a specialised body under the subordination of the Ministry of Public Finances since 1993, in charge of the economic and social strategy planning as well as harmonisation of the national developments with EU provisions and recommendations (please refer further to section VII.4 below).[6] Based on the above benchmarks, the Ministry of Public Finance drafts the annual state budget laws, fixing the spending ceilings for the reference budgetary year (t) and the estimates for the next two years (t+3) and submits it to the Government (Article 20 (1) Fiscal Responsibility Law).

In the second stage, the Ministry of Public Finance sends a framework letter to the primary ordinateurs informing them on the macroeconomic estimates and ceilings within which their respective budgets are to be drafted. The primary ordinateurs send the budget proposals to the Ministry of Public Finances, which analyses their consistency with the set macroeconomic estimates, ceilings and fiscal-budgetary strategy. In a final stage, the consolidated state budget is sent to the Government and subsequently to the Parliament for approval. The local budgets are approved at the local level.

The state budget laws may be amended later on a maximum of two times during the budgetary year but exclusively during the last six months (Article 15(2) Fiscal Responsibility Law).

As of 2013, the law on public finances expressly states that the Medium Term Budgetary Framework (the ‘MTBF’) is the basis for the annual budget (Law 500/2002, Section 1-1). The MTBF follows closely the macroeconomic and budgetary estimates of the European Commission. Any change in the MTBT shall be highlighted in the annex to the annual budget proposal and dully justified (Article 30-2 (3) Public Finance Law).

Given the frequent Government changes noted in the past, the 2013 amendment stipulates that in case of Government change the MTBF may be updated according to the new governance priorities, however the changes shall be detailed and clearly stipulated (Article 30-5 (3) Public Finance Law). As well, in response to long electoral periods registered in the past, in case parliamentary elections are scheduled in the last three months of the annual budgetary period (October-November) the budget must be adopted before (Article 35-1 Public Finance Law).

The annual budgetary calendar corresponds to the following cycle:

 

The calendar of budget formulation[7]

1 June

National Prognosis Commission provides preliminary macroeconomic forecasts for the reference budgetary year together with estimates for the next three years (Art. 31 Public Finance Law).

31 June

Ministry of Public Finances submits proposed spending frames and ceilings for the next budgetary year together with the estimates for the next two years to the Government for main political discussions and approval (Art. 32 Public Finance Law).

31 July

The Ministry of Public Finances submits the Fiscal Budgetary strategy for the next three years to the Government (Art. 18 Fiscal Responsibility Law)

1 August

Ministry of Public Finance sends primary ordinateurs a framework letter on macroeconomic context, the methodology for drafting the budget and the expenditure ceilings approved (Art. 33 (1) Public Finance Law).

 

The ceilings may be modified based on autumn macroeconomic forecast of National Prognosis Commission before November 1st (Art. 33 (2) of Public Finance Law).

15 August

The Government sends the Parliament the Fiscal Budgetary strategy for the next three years together with a legislative proposal on ceilings obligatory for the reference budgetary year and the next two years for approval (Art. 18 and 20, Fiscal Responsibility Law)

1 September

Primary ordinateurs submit budget proposals to the Ministry of Public Finance within the limits of ceilings for the planned budgetary year and the estimates for the next three years (Art. 34 (1) Public Finance Law).

 

If the primary ordinateurs do not adjust the budget proposals to the macroeconomic estimates, methodology and fiscal-budgetary strategy, the Ministry of Public Finance may reject the budget proposal (Art. 34 (4) Public Finance Law).

15 September

Primary ordinateurs resend the adapted budgets to the Ministry of Public Finance (Art. 34 (5) Public Finance Law).

30 September

Ministry of Public Finance Prepares and submits to Government the final draft budget for first reading (Art. 35 Public Finance Law).

 

The budget proposal is accompanied by the Report on macroeconomic situation for the planned budgetary year and its projection for the next three years, including the Government strategy on public investment.

1 November

Revision of the final draft budget in the view of autumn macroeconomic and social estimates of National Prognosis Commission. (Art. 35 Public Finance Law).

15 November

Submission of draft budget to Parliament (Art. 35 Public Finance Law).

By 28 December

Final approval of budget by Parliament (Art. 36 Public Finance Law).

Source: Public Finance law 500/2002 as amended in 2013


General change         
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

Since the entry into force of the Public Finance Law in 2002, twenty out of twenty two amendments were introduced during the crisis period (from 2009 to 2014). Moreover, the Fiscal Responsibility Law introduced in 2010 added to the changes of the budgetary process, introducing a strategic long-term approach to fiscal policy.

 

Fiscal responsibility

The first substantial change of the Romanian budgeting system since the beginning of the financial crisis is the introduction of the Fiscal Responsibility Law (Law 69/2010).[8] The law was adopted in late 2010 and responded to the main challenges identified by the ‘troika’: lack of independent monitoring, absence of a strong multiannual fiscal strategy, poor fiscal targets enforcement and weak fiscal rules. [9]

Therefore, the Fiscal Responsibility Law first puts in place an independent Fiscal Council to ensure the monitoring function. For further reference on the Fiscal Council see section VII.5 below.

Secondly, a multiannual fiscal strategy stage is introduced. As highlighted in the budgetary calendar above (section II.1), the Government by August 15 submits the fiscal budgetary strategy for the next three years on an annual basis to the attention of the Parliament (Article 18 Fiscal Responsibility Law). Furthermore, the Government approves annually a legal proposal on budgetary ceilings for the reference budgetary year and the next two years to be adopted by the Parliament (Article 20 Fiscal Responsibility Law).

Third, in drafting the annual budget laws the Government must take due account of the fiscal budgetary strategy. At the same time, the primary ordinateurs must line up their budget proposals with the budgetary strategy and macroeconomic estimates communicated by the Ministry of Public Finance subject to the sanction of rejection of the budget proposal in case of failure to do so.

Fourth, strict fiscal discipline rules were introduced, backed by responsibilities and sanctions (Fiscal Responsibility Law 69/2010 Section XI, therein).

Multiannual budget planning, budget calendar, budgetary amendments

A stronger emphasis on the multiannual budgetary planning has been included as of 2010, in the form of a multi-annual fiscal strategy (Article 5, Fiscal Responsibility Law). Later in 2013 an express medium term budgetary framework has been introduced, to line up the national and EU budgetary frameworks (Section 1-1 Public Finances Law). The budgetary calendar substantially changed to allow a proper incorporation of European Semester recommendations (Section 2 Public Finances Law). A complete transition towards the European Account System (EAS) in budget planning and reporting, notably for the public deficit calculation was adopted (Art 7-1 Law Public Finances Law).[10]

In terms of budgetary stability, the new legal framework limits the amendments of the budget laws to two budget rectification yearly, both allowed only in the second part of the budgetary year. Further rectifications may be included only in situations of extraordinary macroeconomic imbalances.

Please refer for further details to section VII.8 below.

Institutional change         
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

Parliament

As of 2010 the Parliament is mandated to adopt on a yearly basis the law on fiscal-budgetary ceilings for the next budgetary year on the proposal of the Government (Article 18(2)(2-1) Fiscal Responsibility law). As such the spending caps are binding as provided by law and must be observed by the Government and the primary ordinateurs. In practice, since the introduction of the mechanism, the law on fiscal-budgetary ceilings and the budget laws have been adopted at the same time shortly before the start of the next budgetary year, contradicting the rationale behind the established mechanism.

Government

The Government has undertaken most of the economic reform responsibilities, which enlarged implicitly its sphere of competences.

As such, the Government, through the Ministry of Public Finances elaborates since 2010 yearly the fiscal-budgetary strategy and the report on macroeconomic and social estimates for the next three years. As well the Government establishes annually the ceilings for budgetary spending for the reference budgetary year and the next three years (Article 18(1)-(2-1) Fiscal Responsibility law). It is also for the Ministry of Public Finances to draft and observe the implementation of the National Convergence Programme (see section VII.2 below).

Investment Monitoring Unit and National Reporting System

An Investment Monitoring Unit was set up within the Ministry of Public Finances as of 2013 within the direct subordination of the Delegated Minister for the Budget, enforced by Emergency Ordinance 88/2013, Chapter II. The Unit has as main tasks to prioritise and evaluate and provide expert advice on public investment policies as well as to monitor the sound implementation of the national investment projects.[11]

As well a general national system of verification, monitoring, reporting and control of the financial statements, legal commitments and budgets of public entities has been put in place by Emergency Ordinance 88/2013, Chapter I (National Reporting System). The Ministry of Public Finances centralises and coordinates the implementation and operation of the national system. The system supports the availability and accuracy of data, as the primary ordinateurs are obliged under the contraventional sanctions to report systematically the data on budgetary-fiscal activity.

Fiscal Council[12]

The Fiscal Council was established in mid-2010 and further strengthened in 2013 (Law on fiscal Responsibility). Please refer to section VII.5 below.

Change of time-line
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

See also section VII.8 below.

The implementation of Euro-crisis law changed substantially the prior budgetary cycle time-line. The budget calendar has been adapted to allow a better coordination between the budgeting process on the one hand and the National Reform programme, the National Convergence programme and the European Semester on the other hand.

Since the 2013 reform, the budgetary cycle starts two months later. On 31 June (priorly May 1st) the Ministry of Public Finances submits the spending ceilings and MTBF to the Government to allow the implementation of country-specific recommendations of the European Commission (Section 2 – ‘Budgetary calendar’, Law on Public Finances).

Annually until August 1st (instead of 1st of June) the Ministry of Public Finance sends primary ordinateurs a framework letter on the macroeconomic context, the methodology for drafting the budget and the expenditure ceilings approved. The shift allows for the implementation of the June-July Country Specific recommendations of the European Semester. Finally, the Budget laws proposals are sent to the Parliament by November 15 instead of 15 October to allow a proper consideration and implementation of October-November Council Resolutions.

Miscellaneous
II.5
What other information is relevant with regard to Romania and changes to the budgetary process?

See also section VII.8 below.

[1] Law no. 500/2002 on Public Finance as amended by law 270/2013, available (Romanian) at: http://www.mfinante.ro/legisbuget.html?pagina=domenii

[2] Law no. 273/2006 on Local Public Finance, available (Romanian) at: http://www.mfinante.ro/legisbuget.html?pagina=domenii

[3] Law no. 69/2010 on Budgetary-Fiscal Responsibility as amended by law 377/2013, available in English at: http://www.fiscalcouncil.ro/legea.htm

 

[4] OECD Journal on Budgeting Volume 4, No 4, Budgeting in Romania, 2005, available at: http://www.oecd.org/countries/romania/39997341.pdf

[5] Law no. 500/2002 on Public Finance as amended by law 270/2013, available (Romanian) at: http://www.mfinante.ro/legisbuget.html?pagina=domenii.

[6] See further the official page of the National Prognosis Commission: http://www.cnp.ro/en/organizare

[7] Source: Law no. 500/2002 on Public Finance as amended by law 270/2013, Articles 31-37, available (Romanian) at: http://www.mfinante.ro/legisbuget.html?pagina=domenii

[8] Available in English at: http://www.fiscalcouncil.ro/legea.htm

[9] European Commission, Fiscal Frameworks across member states, Occasional Papers 91, February 2012, pp. 60-61, available at: http://ec.europa.eu/economy_finance/publications/occasional_paper/2012/pdf/ocp91_en.pdf. 

[10] Law 500/2002 on Public Finances, as amended in 2013

[11] Public Investment Unit act of organization, available in Romanian at: http://discutii.mfinante.ro/static/10/Mfp/rof2013/4_1_674_2013.pdf

[12] See also the official page of the Fiscal Council, available at: http://www.fiscalcouncil.ro/index.html