Romania’s moderate public deficit in Jan-Apr eases fiscal tensions

The general government budget deficit was only RON 20.7 bln (EUR 4.22 bln) in January-April, 23% smaller than the same period of 2020. As a share of the full-year projected GDP, the public deficit reached 1.8% in the first four months this year - down from over 2.5% in the same period last year.

The Government targets a 7%-of-GDP budget deficit this year, down from 9.8% of GDP in 2020.

The one-off expenditures related to the crisis were, in January-April this year, RON 8.1 bln (0.7% of GDP). Specifically, these extraordinary expenditures included RON 3.2 bln supplementary investments (compared to the same period last year) while the COVID-19 -related expenditures were RON 4.9 bln.

Under these circumstances, the full-year target remains feasible - and this is not surprising since the Government drafted the budget under more pessimistic assumptions compared to the outlook sweetened by the 2020 and Q1 GDP growth rates. The budget planning for this year includes austerity measures, such as freezing the wages in the budgetary sector and all the social benefits, decided at a time when the year’s 4.3% GDP growth was not expected to offset the economic decline from 2020.

Under the new circumstances, the budget revision in July might bring significant changes: either a tighter deficit target or more public investments (depending on the administrative capacity).

In January-April, the revenues to the general government budget increased by 20.6% yoy to RON 118.4 bln (EUR 24.2 bln). Compared to the annual GDP, they expanded from 9.3% last year to 10.4% in 2021. In April alone, the budget revenues surged by 25.6% yoy to RON 32.6 bln.

However, direct comparisons with past years are complicated by the large volume of tax payments deferred by companies starting March 2020. Thus, the property tax collection nearly doubled this year (+97% yoy to RON 4.5 bln).

Even more challenging is running a direct comparison in the case of the VAT. The authorities stated that the tax refunds in January-April this year remained at the same level as last year - meaning that the robust +41.3% yoy (+RON 6.6 bln) increase in the net VAT collections was generated by supplementary (gross) VAT payment. However, part of this was VAT deferred from last year (which inherently weakened the comparison base) - therefore, the (41.3%) advance is not necessarily impressive.

In the meantime, the general government expenditures increased by roughly 11% in January-April (to RON 139.1 bln or EUR 28.4 bln) and in April alone.

(Photo source: Pixabay.com)