Romania’s Government plans to spend some RON 278.8 billion (EUR 62.5 billion) this year, or 34.2% of the estimated gross domestic product for this year.

The budget revenues are expected to reach RON 254.7 billion (EUR 57.1 billion), or 31.3% of the GDP. The cash budget deficit would thus amount to EUR 24.1 billion (EUR 5.4 billion), or 2.96% of the GDP, according to the first budget draft presented by the Finance Ministry on Monday, January 23.

The Government takes into account an economic growth of 5.2% this year and a nominal GDP level of RON 815.2 billion (EUR 182.8 billion), and an average exchange rate of RON 4.46 per EUR. The state’s investments are expected to reach RON 34.4 billion (EUR 7.71 billion), namely 12.3% of all budget expenses and 4.2% of the GDP, according to the Finance Ministry’s data.

However, many consider the Government’s budget draft overly-optimist, starting with the 5.2% economic growth rate, which is higher than the one estimated for 2016, when a significant VAT cut and wage increases have boosted consumption.

According to Ziarul Financiar, the Government expects to increase budget revenues by 14% compared to 2016, the highest nominal yearly increase in the last ten years. The VAT revenues are expected to increase by 5%, to RON 54 billion (EUR 12.1 billion), in spite of the general VAT rate cut from 20% to 19% starting January 1, 2017.

Social contributions (CAS) revenues are also expected to go up by 13%, to RON 69.7 billion (EUR 15.6 billion). The significant budget revenue growth also relies on a threefold increase in absorbed EU funds this year, to RON 22.3 billion (EUR 5 billion).

Failure to achieve these levels or a lower economic growth rate could thus force the Government to reduce its expense budget, increase some taxes, or go over the 3% budget deficit threshold.

editor@romania-insider.com