RO Govt. expects 1.9% GDP decline and plans 6.7%-of-GDP public deficit this year

Romania's GDP will contract by 1.9% this year, and the Government will target a public deficit of 6.7% of GDP, finance minister Forin Citu announced in a press conference on April 15.

The Government's estimation is much more optimistic than that of the International Monetary Fund (IMF), which expects Romania's economy to plunge by 5% this year. The Government thus expects a nominal GDP of RON 1,080 billion (EUR 223 bln, assuming an exchange rate of RON 4.85 to EUR) compared to RON 1,120 bln initially projected.

The 3% of GDP rise in the budget deficit generates supplementary financing needs amounting to some EUR 6 billion. Nominally, the public deficit target was moved from RON 40.5 billion under the initial budget planning (consistent with 3.6%-of-GDP public deficit) to RON 72.5 bln (EUR 15 bln). The revenues to the state budget will decrease by RON 23.2 bln (EUR 4.78 bln) compared to the initial budget for 2020.

However, transfers from the European Union's budget will increase by RON 3.8 bln (EUR 0.78 bln), resulting in a RON 19.4 bln (EUR 4 bln) net decline in revenues, minister Citu explained.

The RON 3.8 bln from the EU budget matches the EUR 810 mln package sent to the European Commission by the Government for approval and disbursement from the EU budget under a would-be Coronavirus Stimulus Plan.

Meanwhile, the Government's expenditures will increase by RON 12.5 bln (EUR 2.58 bln) compared to the initial budget, as more public spending is needed to mitigate the effects of the new coronavirus.

The public payroll will increase by RON 576 mln (EUR 119 mln) Citu said, adding that this includes the COVID-19 bonuses paid to sanitary personnel. The expenditures with social assistance (including the technical unemployment benefits) will increase by RON 6.9 bln (EUR 1.42 bln). Government officials mentioned last week that part of this will be covered from the EU budget as well.

The Government's special reserve fund will be increased by RON 3 bln (EUR 618 mln) to finance unexpected spending. The volume of planned public investments was maintained intact, minister Citu said. He also assured that there would be no tax hike to offset the rising spending this year. The finance minister didn't clarify, however, how he plans to finance the additional deficit.

(Photo: Ilona Andrei/ Inquam Photos)