Romania’s Fiscal Council* expresses on its website serious reserves in regard to the executive’s projections for future fiscal revenues included in the latest [July 30] budget adjustment. The Council had warned already in a public opinion statement on July 31 that the budget adjustments breach several stipulations of the fiscal responsibility law 69/2010, thus damaging the credibility of the principles outlined in the law.

The government missed the H1 budget revenues target by RON 6.5bn [EUR 1.46bn – or more than 1% of full-year GDP] and the collection rate was 93.7% of the target. The flows from the EU budget were RON 3.35bn below the target, but also the revenue from profit tax, excise tax and non-fiscal revenues were significantly below the target.

There are risks that H2 revenues also remain below planned, the Council warned, speaking of the weak performance of incomes [wages] and consumption with a negative impact on the income tax revenue, social security contributions and VAT collections. The better than expected GDP growth this year is not necessarily going to improve the fiscal revenue due to its drivers, [including among others bumper crop], the Council warns.

The Romanian government will loosen this year’s cash budget deficit target from 2.1% of GDP to 2.3% of GDP, under the revised budget planning. The ESA budget balance will, however, not be altered from the 2.4% of GDP target since non-cash expenditures [engagements for future payments] under the national investment programme PNDI have been cut after the government decided to abandon PNDI. The government will also adjust the projection for this year’s GDP to RON 626.2bn [up 0.4% from RON 623.6bn previously], seeing now the real rate of the annual growth at 1.9%, up from 1.6% previously.

The budget plan for 2013, issued in January, was already a loosened version of the initial draft that included a 1.9%-of-GDP cash deficit target and a 2.2%-of-GDP ESA target.

* A body set up in 2010 under the fiscal responsibility procedures agreed with the IMF in order to supervise and endorse the government’s fiscal policies.