Romania’s budget deficit widened by 49.2% y/y to RON 7.5bn (EUR 1.7bn) in Jan-Apr, the finance ministry reported in a statement. The four-month deficit thus hit 1.2% of the full-year projected GDP, up from 0.85% calculated for Jan-Apr 2012. The wages paid in advance before Easter added a 0.2%-of-GDP contribution to the deficit, the ministry explained.
The annual rise is sharp but since it does not refer to full quarters, it is not entirely relevant and partly driven by in-advance public wage payments likely to reflect in lower May public payroll.* VAT collections shrank unexpectedly by 3.5% in April and the public payroll expanded by 52% y/y in the same month, based on our calculations. The two facts have contributed essentially to the doubling of the budget deficit to RON 3.3bn [0.5% of full-year GDP] in April alone – unless significant backward corrections were operated.
Even if not entirely relevant, the April budget execution adds some uncertainty to the government’s capacity to meet the fiscal consolidation target this year. The leftist cabinet has already expressed preference for looser fiscal policies. The ruling USL coalition has already announced it will enforce as of January 2014 either a 5pps VAT rate cut or a significant cut in the social security contributions. Both seem unrealistic steps at this moment.
Still, the 2.1% of GDP full-year deficit target remains feasible if the absorption of EU funds improves in line with expectations later this year. Romania wants to narrow the deficit to 2.1% of GDP this year from 2.5% in 2012. To achieve this, the government had to enforce new taxes that are expected to bring an additional 0.5%-of-GDP in revenue in 2013. Nonetheless the 0.5%-of-GDP rise in revenue to 31.6% of GDP is expected to be driven mostly by a 0.5%-of-GDP increase in EU funds absorption to 1.9% of GDP.
In Jan-Mar, the budget deficit was RON 4.2bn [0.67% of GDP] – in line with the quarterly targets set under the stand-by arrangement with the IMF. Nonetheless, the budget revenues fell short of the target in Q1 despite the stronger-than-expected GDP, budget minister Liviu Voinea admitted.
In April, budget revenue collections improved as the annual growth rate [of revenue] accelerated to 7.8% y/y from 3.0% y/y in Q1, based on our calculations. Delayed annual rise in excise taxes pushed the excise collections up 22% y/y explaining part of this. But the profit tax collection also improved to positive 7.8% y/y from negative 10.2% y/y in Q1. Notably, the VAT collection shrank 3.5% y/y in April after an encouraging 9.5% y/y rise in Q1.
On the expenditures side, public payroll surged 52% y/y in April, driven by Easter bonuses and in-advance payment of public wages in April -- also before Easter. Besides higher capital spending [possibly aimed at offsetting lower capital spending in Q1, when the budget planning was not endorsed yet], this largely explains the 16.2% y/y rise in total public expenditures.
* Companies/individuals can decide to make their quarterly payments in any month of the quarter.
|General government budget|
|(RON mn)||2012||y/y||Q1 13||y/y||4M 13||y/y||Apr-13||y/y|
|Social sec. & Medicare contribution||51,658||2.0%||13,239||3.6%||17,994||5.9%||4,756||13.1%|
|Transfers from EU budget||7,979||30.6%||1,068||-33.8%||1,818||-10.6%||750||78.7%|
|EU projects financing / transfers*||13,218||22.5%||1,897||-45.3%||3,326||-30.1%||1,429||10.7%|
|EU projects financing / other costs||1,614||n.a.||213||-38.3%||311||-36.7%||98||-32.8%|
| Balance [1-2]||-14,774||-38.2%||-4,189||23.6%||-7,492||49.2%||-3,303||102.2%|
|Rev, % of GDP||32.9%||7.50%||10.4%||2.9%|
|Exp, % of GDP||35.4%||8.20%||11.6%||3.4%|
|Balance, % of GDP||-2.52%||-0.67%||-1.20%||-0.53%|
|Source: MoF, IntelliNews|
|* include co-financing and funds disbursed from EU budget|
|** includes principal loan repayments, bridge loans to EU-funded projects and similar|
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