Romanian Government to rectify the budget

The Ponta Government is set to approve today a budget rectification that will widen the budget deficit from 1.9 percent to 2.25 percent, in the same time increasing the budget revenue by RON 620 (EUR 139 million) and expenses by RON 3 billion (EUR 672 million) against the initial program, in a move approved by the IMF.

PM Ponta said on Wednesday that the additional funding will be used to reduce the level of arrears of local authorities and to finance the healthcare system.

The projected growth in budget revenue is due to better collection of income and wage tax that rose by 1.96 billion (EUR 439 million) in the first semester and additional revenue of RON 907 million (EUR 203 million) from the claw back tax in the pharma sector and RON 2.37 billion (EUR 531 million) generated from VAT, according to the Fiscal Council think tank.

However, the budgetary revenue is expected to decrease by 1.64 billion (EUR 367 million) as a result of a RON 1.39 billion (EUR 311 million) fall in non-fiscal revenue, a decrease of RON 800 million (EUR 179 million) in excises, while capital revenue will shrink by 580 million (EUR 130 million). The EU sums disbursed in the account of public payments is expected to fall by RON 1.86 billion (EUR 417 million), signaling a weak absorption of EU funds.

Meanwhile, public expenses will rise by EUR 672 million, out of which RON 2.2 billion (EUR 493 million) will be funneled towards public authorities and state-owned enterprises (SOEs) for debt payments to the budget.

The Fiscal Council said the downward estimate in revenue is triggered by the reduction of the economic growth to 1.2 percent of GDP and the overoptimistic forecast on some revenue categories.

The Council calls for an accelerated implementation of the corporate governance in SOEs that are large generators of arrears. This request is also coming from the IMF that is working closely with the government at a massive reform program of SOEs. This includes the appointment of private managers and independent boards in key SOEs and their listing on the domestic stock exchange. Some will be sold to strategic investors.