The general government budget deficit in Romania has more than doubled in the first four months of the year compared to the same period last year, to RON 57.3 billion (EUR 11.5 billion), according to data published by the Ministry of Finance. 

Budget revenues increased by 15.3% y/y to RON 182.7 billion: 10.3% of the full year's projected GDP compared to 9.9% last year. Expenditures, however, surged by 29% y/y to RON 240.0 billion or 13.6% of GDP (11.6% last year). Tax revenues alone increased by 10.9% y/y, driven by a 45% y/y advance in profit tax.

The deficit in the first four months already accounts for 3.24% of the GDP projected for the whole year, compared to 1.7% in the same period of 2023 and a 5%-of-GDP official full-year deficit target.

Upload defense spending in Q1, in-advance pension payments in April, and delays in the disbursement of funds from the EU budget explain almost the entire rise in the gap. The government's acceptance of more wage hikes in the budgetary sector and failure to generate the promised "revenues from digitalisation" complicate the fiscal outlook.

But irrespective of the nature of the deficit (permanent or one-off), it needs to be financed, and the pension system reform planned for September will generate more financing needs, particularly in 2025. The government already launched the third FX bond this year and reportedly raised another EUR 4 billion on top of the EUR 7.9 billion raised in January-February. The Treasury has not yet announced the outcome of the third FX bond.

The European Commission projected a 6.6%-of-GDP fiscal deficit this year, followed by a 6.9%-of-GDP gap in 2025.

In advance pension payments ahead of the Orthodox Easter, estimated at RON 11 billion (EUR 2.2 billion, 0.6% of GDP), explains only a part of the fiscal slippage. 

The delayed disbursement of payments under the Resilience Facility generated net expenses related to the projects financed from the EU budget in the amount of RON 6.3 billion compared to RON 2.6 billion in the same period last year – or 0.36% of GDP compared to 0.16% of GDP.

The capital expenditures increased 2.5 times to RON 18.9 billion in January-April this year, rising from 0.5% to 1.1% of the full year's GDP. Supplementary capital expenditure is supposed to be caused by defence contracts.

All these three elements explain almost entirely the advance of the deficit from 1.7% of GDP in January-April 2023 to over 3.2% of GDP one year later.

iulian@romania-insider.com

(Photo source: Alexandru Marinescu/Dreamstime.com)