Romania’s budget deficit hits 4.2% of GDP in H1

Romania’s budget deficit hits 4.2% of GDP in H1
By bne IntelliNews July 29, 2020

Romania's public deficit in the first half of the year soared to RON45.1bn (€9.4bn), 126% more than in the same period last year but less than planned, according to Finance Minister Florin Citu. 

Citu told B1 TV station that the country does not need an agreement with the IMF this year. He also said that the government would observe the 6.7%-of-GDP public deficit target.

The deficit-to-GDP ratio rose to 4.2% of GDP from 1.9% in H1 last year.

"More than half of the deficit, namely RON23bn or 2.13% of GDP, accounts for the fiscal facilities and exceptional expenditures to mitigate the effects of the COVID-19 epidemic," the finance ministry explained in a statement.

The revenues decreased by 1.6% y/y to RON146.3bn, dragged down by the 16% lower net VAT collection (-RON4.76bn). RON10.2bn worth of corporate taxes were deferred, and RON2.94bn of VAT was reimbursed in advance to companies — both measures aimed at preventing a liquidity crisis in the real sector, the ministry explained.

In contrast, expenditures rose by 13.6% y/y to RON191.4bn, pushed up by 24% higher social assistance expenditures (+RON13.3bn). The expenditures related to COVID-19 were RON5.86bn, and the public investments increased by RON3.79bn, the ministry explained. 

For the whole of 2020, the government envisages a 6.7%-of-GDP budget deficit.

The H1 budget execution is one of the key elements to be considered when the government decides on the percentages for increasing pensions and child allowances. At the same time, a budget revision is expected to follow based on the H1 figures. All three major rating agencies expect to see corrective measures to keep the country's rating in the investment-grade area.