Romania's public deficit tops 7% of GDP in Jan-Nov
<p>Romania's public deficit surged 71% y/y to RON 126 billion (EUR 25.3 billion) in <a href="https://mfinante.gov.ro/domenii/bugetul-de-stat/informatii-executie-bugetara?mc_cid=22a97c7e19&amp;mc_eid=607bd7d763" rel="noopener" target="_blank">January-November</a>, particularly due to expenditure-side elements, reaching &nbsp;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.</p>

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

<p>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.&nbsp;</p>

<p>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.</p>

<p>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.&nbsp;</p>

<p>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.</p>

<p>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.&nbsp;</p>

<p>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).</p>

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

<p>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) &nbsp;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).&nbsp;</p>

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

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

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

<p>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.</p>

<p><strong>…and reportedly hit 8.7% of GDP in full 2024</strong></p>

<p>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 <a href="https://www.digi24.ro/stiri/economie/finante-economie/ministrul-finantelor-in-momentul-de-fata-nu-iau-in-calcul-nicio-majorare-de-impozite-si-taxe-video-3067497" rel="noopener" target="_blank">Digi 24</a>.</p>

<p>He assured that the new government would not increase VAT this year.</p>

<p>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] &nbsp;more than planned.</p>

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

<p><em>(Photo: <a href="https://www.dreamstime.com/" rel="noopener" target="_blank">Dreamstime</a>)</em></p>

<p><em>iulian@romania-insider.com</em></p>