Romania’s 2021 public deficit officially confirmed at 6.7% of GDP

The general government budget deficit has narrowed by one fifth (-21% YoY) to RON 80.0 bln (EUR 16 bln) in 2021, the Ministry of Finance announced on January 28.

The deficit-to-GDP ratio dropped to 6.7% last year, from a revised 9.6% in 2020, still significantly above the 4.6% level of 2019 - the last full year before the crisis.

Budget revenues increased by 17.7% to RON 379.6 bln or 31.9% of GDP - a misleading record that reflects rather the deferred budget payments and more significant transfers from the EU budget than better tax collection.

The net VAT revenues thus increased to 20.9% of GDP in 2021 - some 0.5pp above the 20.4% level of 2019. But this improvement is likely to reflect the 1.6pp plunge in VAT revenues in 2020 - at least 0.5pp, if not more, due to the VAT and profit tax deferred under a facility provided by the Government.

Total budget expenditures increased by 8.3% YoY to RON 459.6 bln or 38.6% of GDP in 2021. It is a significant improvement from 40.1% of GDP in 2020.

Notably, the expenditures directly attributable to the Covid-19 crisis are estimated by the Government at roughly RON 15 bln in each of the two years.

The public payroll and social security expenditures, as a ratio to GDP, declined by 1.5pp. The payroll-to-GDP ratio particularly dropped by nearly 1pp to 9.4% - still more than in 2018.

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