Euler Hermes doubts Romanian Govt.’s fiscal consolidation target this year

Romania’s budget deficit will hardly be brought under 8% of GDP this year, given the fiscal policies and structure of expenditures that haven’t changed significantly, says Mihai Chipirliu, Risk Director for the local subsidiary of trade credit insurance specialist Euler Hermes.

Furthermore, financing wide general government budget gaps will bring the public debt to GDP ratio towards 60% in 2022 from 35% in 2019, he argues in the comment delivered along with a macroeconomic report published by Euler Hermes, Ziarul Financiar reported.

Notably, the latest poll among Romanian CFA analysts (among whom Chipirliun is one of them) reveals average expectations for a 6.45% budget deficit this year.

Romania’s Government set a 7.16%-of-GDP budget deficit this year (cash basis), but this is consistent with around 8% of GDP under ESA (accrual basis).

The point made by Chipirliu (overly optimistic consensus forecast) is relevant in the context of the causes mentioned by prime minister Florin Citu when dismissing finance minister Alexandru Nazare. PM Citu mentioned delays in implementing measures aimed at cutting tax evasion and absorbing European funds.

The budget execution as of May (latest data available) show a better overall picture compared to last year (2.3%-of-GDP deficit) - but this is not a surprise as a large number of dues to the budget were deferred from 2020 to 2021 (which explains the discrepancy between the cash and accrual basis).

The 0.7pp deficit deterioration in the first five months of the year, compared to 2019, is in line with the 7%-of-GDP target this year, but there is no guarantee that the revenues will perform in the rest of the year as well as they did in January-May.

Compared to 2019 (the y/y comparison might be misleading), the public deficit in the first five months of this year increased by 40%, while the deficit-to-GDP ratio deteriorated by 0.7pp (to 2.3%). In full-year 2019, the public deficit hit 4.6% of GDP — 2.4pp lower than the expected target for 2021.

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