The general government budget deficit is likely to reach 7.7% of GDP in 2025 (cash terms), 0.7 percentage points (pp) above the government's target of 7% of GDP, according to projections drafted by the Fiscal Council (CF) in its preliminary opinion on the budget planning endorsed by the executive on February 1. 

"The 7%  deficit target in 2025 is very ambitious and requires measures on both the expenditure and revenue sides," the Fiscal Council warned.

Budget execution deviating from the planned trajectory will force the executive to sacrifice part of the public investments (again), it added.

The budget planning is expected to be endorsed by the ruling coalition in Parliament by February 6.

The 0.7pp deviation from the deficit target set by the government includes RON 9.7 billion (EUR 2 billion) or 0.5% of GDP supplementary revenues generated by better tax collection estimated by the executive and RON 4.5 billion (EUR 0.9 billion) supplementary expenditures for goods and services estimated by the Fiscal Council. 

On the upside, the Fiscal Council salutes the government's plans to earmark a significant amount of 7.8% of GDP to investments, from both local budget and European funds. The draft budget, as published for public consultations, indicated public investments-to-GDP share would rise from 6.7% in 2024 to 7.8% in 2025.

Also on the positive side, the Fiscal Council assesses as appropriate the projection issued by the state forecasting body (CNSP) for the dynamics of real GDP, the GDP deflator, inflation, and labour market coordinates.

The public deficit would thus drop by 13.5% y/y from RON 153 billion in 2024 to RON 135 billion in 2025, according to the budget planning endorsed by the executive.

The fiscal consolidation to 7.04% of GDP from 8.65% of GDP in 2024 would be primarily achieved on the revenues side, with more robust transfers from the EU budget. However, expenditures would also contribute, as the public payroll and expenses for goods and services would increase at more moderate rates.

iulian@romania-insider.com

(Photo source: Ungureanu Vadim/Dreamstime.com)