The general government budget deficit in Romania contracted by 57% y/y to nearly RON 24 billion (EUR 4.7 billion) in January-April, according to data published by the Finance Ministry. The deficit to GDP ratio decreased to 1.17% from 2.92% in the same period of last year. 

The detailed figures confirm positive developments in the execution of the budget, but a large part of the consolidation was achieved due to lower investments from the national budget and loans in the first four months this year – by some RON 10 billion, or nearly one-third of the annual decrease in the overall budget deficit. 

The lower investments this year are explained by the Finance Ministry as a base effect after outstanding payments in the first months of last year – delayed payments to contractors, one-off defence spending, and the disbursement of the state’s capital contribution to Carpatica Feroviar state railway company. This means that last year’s deficit was artificially increased by these one-off payments and the fiscal consolidation (-57% y/y) overstates the fundamental improvement achieved by the government’s policies – but, still, the low absolute value of the deficit in the first four months of the year (1.17% of the GDP projected for the whole year) remains an outstanding performance paving the way for meeting the full-year 6.2% of GDP target.

The revenues to budget increased by 12.0% y/y to RON 223.8 billion (10.9% of the year's projected GDP, up from 10.4% in the same period last year), and the tax revenues alone rose by 15.5% y/y. Particularly, the VAT collection increased by 22.4% y/y, contributing more than a third to the overall RON 23.9 billion increase in revenues. 

Higher VAT rate this year compared to January-April last year, and the inflation nearing 10% contributed to this, as the retail sales decreased in volume terms. 

The social security contributions also increased by 8.8% y/y (+RON 6.0 billion), contributing a quarter of the overall advance of the budget revenues. The personal income tax surged by 22% y/y (+4.3 billion), possibly as a result of the tax being waived on fewer taxpayers, and the tax on property surged by 31% y/y (+2.2 billion) as a result of higher tax rates set by local administration. 

The expenditures contracted by 3.2% y/y to RON 247.8 billion in January-April, accounting for 12.1% of GDP projected for the whole year, down from 13.4% in the same period last year. The fiscal consolidation was thus predominantly driven by the expenditure side. 

The 49% y/y decline in the capital expenditures from the national budget (-9.0 billion) was larger than the RON 8.1 billion decrease in overall budget expenditures. Notably, the public payroll decreased by 3.3% y/y and the social security by 1.0% y/y. 

The expenditures related to projects financed by grants under RRF/PNRR doubled y/y (+RON 4.2 billion), and the expenditures related to projects funded by loans under RRF/PNRR decreased by 25% y/y (-RON 1.4 billion). 

iulian@romania-insider.com

(Photo source: Inquam Photos/Octav Ganea)