Romania’s public deficit widens slightly to 2.65% of GDP in January-August

Romania’s public deficit widened by 28% y/y to RON 42.2 billion (EUR 8.5 bln) in January-August and accounted for 2.65% of the full year’s GDP, the Finance Ministry announced.

The revenues increased by 12.5% y/y (tax revenues: +10.5% y/y), driven by the disbursements from the EU budget. Expenditures increased by 14% y/y, driven by capital expenditures (+22% y/y) and EU-funded projects (grants, +39% y/y).

The nominal advance of the country’s GDP this year (expected at 13% y/y) absorbed part of the sharp 28% y/y surge in the public deficit, resulting in a moderate advance of the deficit-to-GDP ratio to 2.65%, from 2.34% in the same period last year.

The nominal rise (28%) seems impressive, but the gap is not even half the revised full-year target (5.5% of GDP). However, Romania constantly backloads the deficit. This pattern reflects the delayed payments to public project contractors.

Last year, the deficit in the last four months was roughly one and a half the deficit in the first eight months. And the gap eventually reached 6.2% of GDP.

It is, therefore, premature to conclude that the 5.5%-of-GDP target is within the government’s reach.On the contrary, the executive projected a 6.8%-6.9% of GDP deficit, and the fiscal package recently passed (not yet enacted) has only a minor impact during this year.

The full-year figure will thus be “fine-tuned” via delayed payments or even a slowdown in the public projects – a risky strategy with a negative impact on growth. EBRD’s downward revision on Romania’s economy (to 1.9% y/y) and even more pessimistic independent projections are consistent with (and possibly prompted by) the sluggish fiscal consolidation.

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