Romania’s public deficit may stay below target this year

Romania's budget deficit narrowed to RON 56 bln (EUR 11.3 bln) in the first eleven months of 2021, one-third less than the gap in the same period of 2020, according to data published by the Finance Ministry on December 27.

The improvement was steeper in terms of per-GDP terms: from 7.9% to 4.7%.

The revenues increased by 17.5% yoy in nominal terms and by 1.25pp in per-GDP terms (from 27.4% to 28.7%). The 36% yoy surge in VAT collection, largely responsible for the better revenues, reflects payments deferred from 2020. The expenditures increased by only 6.1% yoy in nominal terms and contracted by 2pp in per-GDP terms (from 35.4% to 33.4%). The public payroll edged up by only 1.4% yoy and contributed nearly half (0.9pp) to the drop in the expenditures-to-GDP ratio.

Under its latest budget revision, the Government targets a deficit of 7.13%-of-GDP, down from 9.8%-of-GDP in 2020. But it may end with an achievement actually recommended as appropriate by the Fiscal Council, namely a smaller fiscal gap. Although the expenditures are particularly high in the last month of the year, a monthly deficit of the same magnitude as last December would still keep the budget gap around 6.6% - around 0.5pp below target.

Romania is in a good position to end the year with a deficit below the target of 7.13% of GDP, finance minister Adrian Caciu said in a Bloomberg interview.

“We are trying to obtain a budget deficit reduction, and the premises are optimistic,” Caciu said. “As we said in the governing program, one of the priorities of the planned fiscal consolidation is eliminating the fiscal splurge and narrowing the deficit.”

Romania pledged to cut its budget deficit closer to the European Union’s 3% limit by 2024. The Parliament last week approved a budget for 2022 with a deficit target of 5.8% of gross domestic product, but the bill still needs to be cleared by the Constitutional Court after the opposition challenged it and must be signed by president Klaus Iohannis before entering into force.

(Photo source: Gov.ro)