Romania's public deficit surged 71% y/y to RON 126 billion (EUR 25.3 billion) in January-November, particularly due to expenditure-side elements, reaching  7.1% of the year's estimated GDP in the first eleven months of the year from 4.6% of GDP in the same period of 2023.

The nominal GDP is estimated to have advanced by 10% y/y nominally and by 1% in real terms in 2024.

Because Romania's public deficit is seasonally wider in the last month of a year when part of the public works contracted are commissioned (the month's gap was nearly 2% of GDP in 2023), the full-year deficit may come close to 9% of the GDP, in 2024. The deficit target should be set at 7% in 2025 under the fiscal consolidation plan agreed by Romania with the European Commission, resulting in a 2%-of-GDP consolidation burden this year, out of which only 0.4 percentage points (pp) were achieved under the corrective package endorsed by the government. 

More radical fiscal consolidation measures are thus necessary immediately. The government's failure to draft a credible budget plan for 2025 would increase the probability of an extremely unfavorable rating and public financing scenario for Romania.

The capital expenditures in January-November, including the large-sized defense procurement deals, rose by 67% y/y from 2% of GDP in 2023 to 3.1% in 2024. Total investments, from loans, grants, and the national budget, rose 24% y/y to 6.5% of GDP from 5.8% in 2023. 

However, other categories such as the public payroll (+24% y/y to 8.4% of GDP), goods and services (+22% y/y to 4.8% of GDP), and uncategorized "other expenditures" (+90% y/y to 1% of GDP) also advanced at a high pace. Social assistance (mainly pensions) accounted for 11.6% of GDP (31.6% of the budget expenditures) after advancing by only 16.2% y/y.

The expenditures, other than investments (from grants, loans, and national budget), increased by 20% y/y to 30.3% of GDP (+2.5pp compared to 27.8% in the same period of 2023), whereas the expenditures not including foreign grants (but the investments from the national budget or foreign loans) increased by 25% y/y to 34.1% of GDP (+4.1pp from 30% in the same period of 2023). Both ratios should be adjusted by the 9% nominal GDP advance, resulting in real annual growth rates of roughly 10% y/y and 15% y/y respectively. 

Overall, total expenditures increased by nearly 21% y/y or +11% y/y in real terms, to RON 650 billion or 36.8% of GDP (+3.2pp).

The total revenues increased by 12.7% y/y to RON 524 billion or 29.7% of GDP (+0.7pp y/y). In real terms, the advance was +3.4% y/y.

Revenues not including transfers from the EU budget rose by a decent rate of 17.2% y/y (+7.5% y/y in real terms)  to 27.6% of GDP (+1.7pp y/y) while the transfers from the EU budget contracted by 26% y/y to 2.1% of GDP (-1pp y/y). 

The tax revenues rose 15.7% y/y (+6.1% y/y in real terms) to 15.1% of GDP.

The revenues from income and profit tax increased both by above 20% y/y, corresponding to real growth rates of above 10% y/y.

By comparison, the net VAT collection rose by only 15% y/y or a real advance of 5.5% y/y.

The Ministry of Finance eliminated from the budget execution template the "revenues from privatization" line, which was empty until October – a category for which it initially planned RON 10 billion (0.5% of GDP) but had no methodology to separate it from other categories.

…and reportedly hit 8.7% of GDP in full 2024

Finance Minister Tanczos Barna said on January 3 that the public budget deficit for 2024 is estimated at 8.7% of GDP. "This is the level we inherited from [former minister]. Marcel Boloș, and we hope it will remain below 9% of GDP [after final revision]," Tanczos Barna told Digi 24.

He assured that the new government would not increase VAT this year.

Asked repeatedly where the government would get the money needed to cover the deficit, Tanczos Barna claimed that the money would come from the Treasury, which he said had collected [in the last months of 2024]  more than planned.

The minister, however, admitted that this better collection rate came on the back of the tax amnesty.

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iulian@romania-insider.com