Romania’s general government budget deficit has widened by 74% y/y to RON 109 billion ( EUR 22 billion) in January-October, according to data published by the Finance Ministry. 

All categories of expenditures surged – the investment-related expenditures but also the current expenditures – while the current revenues increased by only a decent rate furthermore not matched by adequate absorption of EU funds.

Romania heads towards an 8%-of-GDP public deficit this year, estimated as the point of departure for a slow-paced, seven-year fiscal consolidation scheme notified to the European Commission. 

The budget revenues increased by 13% y/y to RON 474 billion in January-October this year, and the revenues-to-GDP ratio improved compared to the same period in 2023 to 26.8% from 26.1%. 

The revenues generated by the income and profit tax rose by 20% y/y and 22% y/y, respectively – twice as fast as the 10.1% advance of the nominal GDP projected for this year. The VAT collection increased by 17% y/y. Social security contributions also increased at a significant rate, by 20% y/y to 8.8% of GDP from 8.1% in 2023.

The “other taxes on goods and services,” including the surcharge collected from the energy companies, diminished by 25% y/y with a negative impact of 0.3 percentage points on the revenues-to-GDP ratio.

The flows from the EU budget under various schemes (MFF, Resilience facility) contracted by 21% y/y to RON 30.8 billion or 1.7% of this year’s GDP, down from 2.4% of GDP in 2023 – indicating weaker absorption of EU funds.

On the expenditures side, the rise was robust: +21% y/y to RON 583 billion.

The expenditures already accounted for 33% of the projected 2024 GDP, 3 percentage points more compared to the same period of 2023. 

Out of the 3 percentage point (pp) rise in public spending, only 1 pp was due to stronger capital expenditures or expenditures related to projects financed from the EU budget. The other 2 pp rise was due to a larger public payroll (+24% y/y, 7.6% of GDP up from 6.7% one year earlier), and the expenditures with goods and services rose by 21% y/y to 4.3% of the year’s projected GDP up from 3.9% in the same period of 2023.

The expenditures with capital and EU-funded projects indeed increased by 33% y/y to 5.7% of the year’s projected GDP, up from 4.7% in the same period of 2023.

iulian@romania-insider.com

(Photo source: Alexandru Marinescu/Dreamstime.com)