Romania’s public deficit hits 6.4% of GDP in Jan-Sep

Romania's public deficit rose to RON 67.3 billion (EUR 13.9 bln) in the first three quarters of this year, widening 2.5 fold compared to the same period last year.

The revenues edged down marginally by 0.4% year-on-year to RON 227.7 bln (EUR 46.9 bln), while the expenditures increased by 15.4% YoY to RON 295.0 bln (EUR 60.8 bln).

The deficit to GDP ratio also increased substantially to nearly 6.4% of GDP in January-September from less than 2.6% of GDP last year.

A poll among Romanian CFA analysts indicates average expectations for a public deficit of 7.9%-of-GDP in 2020. Under its latest forecast, the World Bank sees Romania's public deficit as narrowing to 4% of GDP in 2022, from an estimated 9.1% of GDP in 2020. Fiscal consolidation remains the cornerstone of the post-crisis economic recovery as the rating agencies expect a credible strategy from the new Government after the general elections on December 6.

In the third quarter of the year, the deficit stood at 2.2% of GDP, three times more than in the same period last year (0.7% of GDP), and not far from the 2.5% of GDP figure reached during the toughest episode of the crisis - in Q2.

CFA analysts expect the crisis to generate a negative impact until the third quarter of 2021. It is not the short-term series that can generate confidence and prevent sovereign downgrade, though, but credible rhetoric broadly expected after the elections. Sudden consolidation is not likely or even advisable as the economy still needs fiscal stimuli, but credible rhetoric is necessary to anchor investors' confidence.

Speaking of the public deficit in January-September, half of it came from measures to help the companies and households weather the crisis, the Finance Ministry explained in a statement.

Thus, the Government estimates the magnitude of the fiscal stimuli at RON 37.12 bln (3.5% of GDP). This includes RON 16.5 bln taxes deferred by companies, RON 3.22 bln accelerated VAT refund, RON 0.57 bln bonuses granted to taxpayers that paid their dues in time, RON 6.83 bln higher public investments compared to last year, and RON 10.35 bln expenditures directly aimed at fighting the sanitary crisis.

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