Romania’s general government budget deficit more than tripled in the first five months of this year compared to the same period last year.

The gap reached RON 8.1 bln (EUR 1.8 bln) or 0.88% of GDP, up from RON 2.2 bln (EUR 475 mln) or 0.25% of GDP in Jan-May 2017.

The deficit widening was mainly generated by a faster growth of expenditures compared to revenues. Thus, budget spending increased by 18.4% in Jan-May compared to the same period in 2017 while the revenues only increased by 12.7%. Nevertheless, VAT collection slightly picked up in May alone, but insufficiently to offset expenditures’ growth.

The most significant increase in revenues was from social contributions (up by 35.5% y/y), most probably due to social contributions transfer to employees. The worse performance was in personal income tax collection as a result of the tax cut to 10% from 16% as of Jan this year.

The increase in expenditures was largely fueled by increasing personnel spending (up by 22.3% y/y) after the government increased wages in public sector. Other more significant expenses growth was for goods and services, interest, subsidies and social transfers (mostly over pensions hike).

Public investment reached RON 7.4 bln (EUR 1.6 bln) and were 1.8 times higher compared to Jan-May 2017.

editor@romania-insider.com