Romania’s public deficit over 2.9 pct of GDP in 2018 due to lower than expected GDP value

Romania’s public deficit in 2018 rose to 2.91 percent of the gross domestic product (GDP), from 2.88 percent initially estimated, as the GDP value was much smaller than expected.

The Ministry of Finance has announced in January a fiscal gap of 2.88 percent of GDP at end-2018 in national “cash” terms.

However, two factors were still unknown at that time for more accurate calculations: the value of GDP in 2018 and the value of budget deficit in EU standards (ESA).

But the Romanian official statistics body (INS) said on Thursday that Romania’s GDP was RON 940.5 billion (EUR 202 billion) last year – significantly below the government’s last forecast of RON 949.6 billion.

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 2.91 percent of the new GDP value, up 12.5 percent compared with 2017 as soaring expenses overshadows revenue increase.

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The government-controlled forecast body (CNSP) has forecasted 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.

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.

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 (more than 4 percent per year in 2018).

New taxes in 2019

Running out of revenue sources, the government has introduced a tax on bank assets of 1.2 percent per annum 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.