Romania’s Fiscal Council projects 3.4%-3.7% budget deficit this year

There are significant risks that the budget deficit will exceed this year the 2.76%-of-GDP target and even the 3% of GDP benchmark, according to a review of the budget revision issued by the Fiscal Council on August 8.

In the absence of supplementary credible corrective measures, this year’s budget deficit, calculated according to the national methodology, will be between 3.4% - 3.7% of GDP, according to the Fiscal Council’s estimates.

The Council issued seven main objections to the budget revision. For example, it expressed “significant reserves” about the estimated budgetary revenues - especially in the case of VAT and social insurance contributions. It believes the revenues will be RON 5.8-6.8 billion (EUR 1.22-1.43 billion, up to 0.7% of GDP) lower than expected by the Government.

Regarding the budgetary expenses, the Council is worried about the proposed levels for the social assistance expenses and those with the purchase of goods and services. These expenses may be RON 3.5-4.5 billion (EUR 735-950 million, up to 0.45% of GDP) higher than those anticipated by the Government.

Lower absorption of European funds could reduce the budget deficit by RON 2.5-3.5 billion (EUR 525-735 million, up to 0.35% of GDP) although this will have a major negative impact on the development in general, the Council commented.

This is the first such review drafted after Daniel Daianu (an academic, formerly in central bank’s board) was appointed at the top of the body to replace Raiffeisen Bank’s chief economist Ionut Dumitru.

The Coalition for Romania’s Development (CDR) also criticized the budgetary rectification, as budgetary allocations for key areas for the economy decreased. CDR called on the Government not to introduce new taxes without prior consultations.

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