Romania has managed to keep the budget deficit below the European Union’s ceiling of 3 percent of GDP as the official data show a fiscal gap of 2.88 percent of GDP at end-2018 in national “cash” terms, according to the Ministry of Finance. However, two factors are still unknown for more accurate calculations: the value of GDP in 2018 and the value of budget deficit in EU standards (ESA).
Romania’s general consolidated budget, which includes fiscal and social budgets of the government, registered for the entire year 2018 a deficit of RON 27.3 billion (EUR 5.9 billion), or 2.88 percent of estimated GDP, un 12.5 percent compared with 2017 as soaring expenses overshadows revenue increase, according to the data released by the Finance Ministry.
However, the percentage of GDP depends of the final value of the gross domestic product. The government-controlled forecast body (CNSP) estimates a GDP of RON 949.6 billion (EUR 204.2 billion) for 2018, at a growth rate of 4.5 percent, considered largely overestimated by the economists.
Official data show that budget revenues rose by 17.2 percent against 2017 while expenses surged by 16.8 percent.
The picture for the entire year 2018 looks very different compared with the first 11 months indicating large-scale adjustments in December in order to limit the deficit.
In January-November 2018, budget revenues rose by 14.6 percent against the first 11 months of 2017 but expenses surged by 20.6 percent.
The general budget in the first 11 months of 2018 closed with a deficit of RON 26 billion, or 1.77 percent of estimated GDP.
These data suggest the deficit for the month of December was RON 1.3 billion, the lowest deficit for the last month of the year in years.
Revenues from social contributions rose by 36.8 percent, VAT revenues increased by 11.3 percent, while revenues from income tax declined by 24.8 percent compared with 2017.
In the same time, budgetary wage expenses increased by 23.7 percent in 2018 and capital expenses rose by 22 percent.
Expenses with goods and services increased by 9.8 percent compared with 2017.
Soaring interest expense
But experts are particularly concerned about the rapid increase of government’s interest expenses.
Official data show that interest expense rose by 27.8 percent last year, to RON 12.9 billion, from RON 10.1 billion in 2017.
Higher deficits can make it more difficult for the Romanian government to raise funds in order to finance the public debt.
Romania is already EU’s member state which pays the highest interest rates for its debt (3.96 percent per year in 2017).
Romania’s sovereign 10-year bonds yield, a barometer for the cost of financing in the economy, is now close to 5 percent, amid growing concerns regarding the health of public finances.
New taxes in 2019
Running out of revenue sources, the government has recently introduced a tax on bank assets of 0.3 percent from January 1st, 2019, and capped the retail and corporate gas price at RON 68/Mwh.
The government also imposed special taxes of 2 percent of turnover on energy firms and 3 percent on telecom companies.
The government has not released until now a budget project for 2019 and many experts say it has no money to finance its soaring spending on public servants’ wages and pensions.