Romania’s general government budget deficit narrowed by 71% y/y to RON 947mn (EUR 213mn) in April – which was equivalent to 0.14% of the full-year projected GDP, according to calculations based on finance ministry data.

Monthly data are not entirely relevant but they reveal that while VAT and excise collections kept rising significantly in the month, as well as the profit taxes – the capital expenditures and co-financing of EU-funded projects remained particularly weak. In addition, the public payroll marked a major annual decline of minus 20% that can be explained only by Easter-related bonuses being paid out in a different month this and last year.

For full 2014, the government has set a 2.2%-of-GDP deficit target under both the national cash and EU’s ESA methodologies. In the meantime, PM Victor Ponta mentioned supplementary military spending of some 0.2% of GDP but no specific decision was passed in this regard.

A first budget adjustment is expected for this year after IMF’s review of the stand-by deal with Romania in late June or early July. Revenues, rather disappointing in Q1, will probably recover in Q2 with the collection of the new 1.5% tax on special industrial assets. The government even expects either cutting the VAT on food or cutting the social security contributions later this year as a result of the supplementary revenues from the new tax.

In Q1, the fiscal gap narrowed by 78% y/y to RON 930mn [0.14% of GDP] despite the disappointing revenues, the fiscal consolidation being driven by massive cuts in the capital expenditures and co-financing of EU-funded projects.

Revenues increased by 6.2% y/y to RON 19bn in April, while spending contracted by 5.9% y/y to RON 20bn. On the revenues side, net VAT collections were up 12.6% on the year – possibly driven by stronger retail sales but also on base effects after the government accelerated the reimbursement of VAT arrears last year. Excise tax collections also increased by 17.7% y/y – as the car fuel excise tax was hiked from the beginning of the month. Profit tax collection also increased visibly by 19.7% y/y.

On the expenditure side, spending on goods and services increased, as well as the interest payments -surprisingly by 36.1% y/y. Payroll plunged by 20.1% y/y. Capital expenditures were 30% down on the year – after the 48% y/y contraction seen in Q1.