The budget execution data for January-February published by the Finance Ministry reveals, besides the 1.6%-of-GDP public deficit announced in advance, three major issues: still high payroll growth rates (an effect of wage hikes during 2024, likely to diminish through 2025), rising interest paid on public debt (a problem likely to deepen with higher debt and depending on the political stability), and problematic absorption of EU funds (particularly grants).
Romania targets a 7.0%-of-GDP deficit this year, down from an 8.65%-of-GDP gap in 2024, but a 7.5%-of-GDP deficit would still prevent significant deterioration in investors' confidence.
Overall budget revenues increased by only 3.5% y/y to RON 87.7 billion (4.7% of the year's projected GDP, down from 4.9% in January-February 2024).
However, the performance was dragged down by the 46% plunge in the transfers from the EU budget (RON 4.4 billion).
The rest of the budget revenues increased by 8.7% y/y to RON 85.3 billion and accounted for 4.5% of the year's GDP, up from 4.4% last year. The tax revenues increased by 9.6% y/y – driven by direct taxes (income, profit), while the indirect taxes (VAT, excises) lagged behind.
Overall budget expenditures rose by 3.7% y/y to RON 119.9 billion and accounted for 6.3% of the year's projected GDP, down from 6.5% in January-February 2024.
Without the spending financed out of EU transfers, the budget expenditures rose by 7.0% y/y to RON 114.0 billion.
The public deficit without the effect of the EU transfers/expenditures was, therefore, RON 28.8 billion – up 2.2% y/y and 1.5% of the year's projected GDP (from 1.6% last year).
Total investments and spending financed from EU transfers contracted by 30% y/y while the non-capex spending rose by 11.6% y/y to RON 104.3 billion, marking a still high growth rate.
The 16% y/y rise in the payroll paid by the government is an effect of the wage hikes operated through 2024, and no such hikes since November-December should result in lower y/y payroll growth rates throughout the year.
The interest on public debt rose by 50% y/y to RON 10 billion (EUR 2 billion) and accounted for 8.4% of the government's total expenditures in January-February, which was up from 5.8% in January-February 2024.
iulian@romania-insider.com
(Photo source: Alexandru Marinescu/Dreamstime.com)
