Romania’s public deficit almost doubled in January-April on soaring wage, interest spending

Romania’s budget deficit rose by 88.5 percent in January-April compared with the first four months of last year, to RON 11.4 billion (EUR 2.4 billion), as the government has major difficulties to cover soaring wage, pensions and interest spending.

In January-April 2018, the budget deficit amounted RON 6.05 billion.

Official data show that budget revenues rose by 11 percent year-on-year in January-April while expenses increased by 15.9 percent.

The general budget in January-April closed with a deficit of RON 11.4 million, or 1.11 percent of estimated GDP.

Surging wage spending

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Revenues from social contributions rose by 19.6 percent, VAT revenues increased by 12 percent, while revenues from income tax – paid by individuals – declined by 11 percent compared with January-April 2018.

In the same time, budgetary wage expenses increased by 26 percent against January-April 2018 and capital expenses declined by 6.4 percent.

Expenses with goods and services increased by 14.9 percent year-on-year in January-April.

Last year, Romania has registered a budget deficit of 3.02 percent of GDP, slightly exceeding European Union’s ceiling of 3 percent of GDP.

Surging interest expense

Experts are particularly concerned about the rapid increase of government’s interest expenses. Last year, interest expense rose by 27.8 percent up to RON 12.9 billion.

The trend continued this year as interest expenses increased in January-April by 14.9 percent year-on-year to RON 5.8 billion as the government had lower access to financing from local banks after it imposed a tax on assets since the beginning of this year.

Romania is the EU’s member state which pays the highest interest rates for its debt.

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 and high uncertainties in 2019

Running out of revenue sources, the government has introduced this year a tax on bank assets and special taxes of 2 percent of turnover on energy firms and 3 percent on telecom companies.

The measure was largely criticized by economists and businesses alike and the government stepped back by reducing some taxes, postponing others and even cancelling some of its decisions.

The 2019 budget bill indicates a budget deficit of 2.76 percent of GDP.