Romania's budget deficit reached RON 38.8 billion (EUR 8.1 bln) in January-May, 2.6 times more than in the same period last year.

Half of the gap is the effect of the fiscal allowances and additional expenditures related to the measures taken to mitigate the coronavirus pandemic's effects, the Ministry of Finance explained.

The deficit already accounts for nearly 3.6% of the year's GDP under the Government's optimistic projection (1.9% GDP contraction), compared to 1.4% of GDP in the first five months of 2018. Excluding the coronavirus impact, the deficit would be 1.8% of GDP, compared to a 3.6% gap envisaged by the Government in December before the pandemic.

The Government targets a 6.7% of GDP budget deficit this year under the revised planning. Meanwhile, the European Commission expects a public gap of 9.25%, taking into account the 40% pension hike planned for September.

A moderate pension hike of 10%, as considered by the Executive, would still put the EC's projection at slightly over 8.5%.

The budget revenues in January-May edged down by 3.4% year-on-year to RON 119.6 bln (EUR 24.85 bln) while the expenditures increased by 14.4% to RON 158.4 mln (EUR 32.93 bln).

The net VAT collection decreased by 19% year-on-year or by RON 4.7 bln - almost EUR 1 billion, which, given the slight increase in consumption, must account for the disbursement of VAT payments owed by the Government to companies (arrears).

Separately, the payment of property tax, profit tax, income tax, and social security contributions was deferred, and this led to a RON 3.3 bln (EUR 690 mln) decrease in revenues.

On the expenditures side, more than half of the increase was prompted by the RON 10.2 bln (+22% year-on-year, over EUR 2 bln) increase in social security spending (including the technical unemployment benefits).

In May alone, the budget revenues decreased by 12% year-on-year to RON 21.4 bln (EUR 4.42 bln) while the expenditures rose by 21% year-on-year to RON 33.4 bln (EUR 6.91 bln) resulting in a deficit of RON 12 bln, 3.6 times higher than in the same month last year.

(Photo: Sarinya Pinngam/ Dreamstime)

editor@romania-insider.com