Romania posts 0.5%-of-GDP budget deficit in Q1

Romania recorded a budget deficit of RON 5.5 billion (EUR 1.16 billion), or 0.54% of this year's projected GDP deficit, in January - March (Q1) this year.

The fiscal gap widened by RON 1.1 billion (EUR 230 million) compared to the same period last year when it accounted for only 0.47% of GDP. The widening occurred despite lower capital expenditures, which declined by 20% year-on-year to RON 3.3 billion (EUR 0.7 bln) in Q1 compared to last year when big military contracts were paid.

The budget revenues increased by 12.5% year-on-year to RON 74.7 billion (EUR 15.9 bln) in Q1. As a share of the year's projected GDP, the revenues increased to 7.3% from 7% in Q1 2018. The bulk of the increase was prompted by 22% higher social security (pension plus health) contributions, which reached RON 26.8 billion (EUR 5.7 bln) or 36% of the total revenues, up from 33% last year. The collection of VAT (net terms) and excise taxes also increased by 15%-17% accounting for over 30% of the budget revenues, nearly one percentage point more than last year.

Expenditures increased by 13.2% year-on-year to RON 80.2 billion (EUR 17.06 bln) or 7.8% of year's GDP, up from 7.5% last year. Public payroll soared by 26% to RON 24 billion (EUR 5.1 bln), or 30% of total expenditures (and a massive 2.3% of the year's GDP), while the social security spending increased as well by 15% to RON 28 billion (EUR 6 bln), or 35% of total expenditures. Altogether, the payroll and social security spending accounted for two-thirds of quarter's expenditures, 3.5 percentage points more than last year, which puts additional pressure on the fiscal space (money for discretionary spending such as capital expenditures).

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