Analysts: Romania’ public finances are increasingly vulnerable to potential shocks

Romania’ public finances are increasingly vulnerable to potential shocks as the share of rigid state spending out of stable revenue sources reached almost 80 percent, ING Bank analysts warned on Tuesday in a research note reacting to the release of 9-month budget details.

“The share of rigid state spending (up by 18% YoY) out of stable revenue sources (up by 12.8% YoY) reached almost 80%, limiting budget flexibility and increasing the vulnerability of public finances to potential shocks,” the report says.

However, the analysts estimate that the government remains committed to the 3 percent of GDP deficit target.

“Less impetuous spending usually clustered into the year-end and maybe requesting quarterly dividends from State Owned Enterprises (SOEs) if needed are likely to keep the budget deficit within the planned limit,” ING Bank report indicates.

Hence the commitment to the 3 percent of GDP budget deficit limit could become a trade-off between political costs for sticking to this ‘fiscal rule’ and those arising from entering the excessive deficit procedure, including lower budget flexibility, according to the analysts.

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“With economic growth slowing down both domestically and abroad, this balancing act looks increasingly challenging,” the experts warn.

Romania’s general consolidated budget, which includes fiscal and social budgets of the government, registered after the first nine months of this year a deficit of RON 16.8 billion (EUR 3.6 billion), or 1.77 percent of estimated GDP, 2.5 times bigger compared with the same period of 2017 as soaring expenses overshadows revenue increase, according to the data released by the Finance Ministry.