Romania’s budget deficit to exceed 4 pct of GDP without additional fiscal measures, experts say

Sorin Melenciuc 02/08/2019 | 15:40

Romania’s budget deficit will exceed 4 percent of GDP this year without additional fiscal measures, independent experts estimate.

After the first six months of the year, Romania’s budget deficit hit 1.94% of GDP.

“Things seem to have deteriorated a bit on the fiscal policy front as the mid-year budget execution doesn’t leave much room to maneuver for the rest of 2019. Last time the consolidated budget came close to this figure was in 2011,” Valentin Tataru, economist at ING Bank Romania, said on Friday in a research note.

“In fact, so far in 2019, both the deficit numbers and execution pattern seem to resemble 2011 when we closed the year with a budget deficit of 4.2 percent of GDP,” he added.

The nominal deficit stands at RON 19.9 billion and this means that if it were to stay within the 3 percent deficit limit, the government has just under RON 11 billion of deficit spending left for the remaining six months of 2019.

Ionuţ Dumitru, chief economist at Raiffeisen Bank, estimates that the government should find additional revenues of about RON 10 billion in order to maintain the deficit at 3 percent of GDP.

“Given the six-month budget execution and the pattern existing in the first semester, the budget deficit will reach about 4.5 percent of GDP this year,” Dumitru said, cited by Economica.net.

But expenses are about to increase, starting 1 September 2019, by about RON 2.1 billion per month due to the already approved 15 percent pension increase, experts warn.

“This leaves very little fiscal space. So where will the money come from? As usual, investments are likely to take a hit,” Tataru estimates.

Capital spending at mid-year stands at RON 7.9 billion and is projected to reach around 4.6 percent of GDP this year, or RON 47 billion.

“Given that in the last three years, the share was broadly constant around 2.5 percent, we seriously doubt that this year’s target will be reached. We think that between 1.2 percent and 1.7 percent of GDP will be saved by cutting these expenses. But still, a bit more (we estimate c.0.3-0.6 percent of GDP) is needed,” ING Bank economist points out.

Experts forecast that the government will most likely opt for a patchwork of measures including SOE’s special dividends, VAT reimbursement delays, or less impetuous year-end spending.

More ample measures are being discussed as well, such as taxing special pensions, increasing tobacco excises earlier than planned and a special tax on sugary drinks.

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