Romania’s general government deficit nearly tripled y/y to RON5.14bn (0.6% of GDP) in January-July, the finance ministry reported on August 25. In July, the budget posted a 0.1% of GDP surplus versus a 0.3% of GDP surplus last year.

The tripling of the deficit of the total budget (which was achieved on a low base and is still moderate in value), is less concerning than the dynamics of the national budget balance, which only includes revenues from local sources. The fiscal slippage of the national budget (calculated by filtering out the effects of transfers from the EU budget) was twice as wide as that of the total budget, and its balance shifted from surplus to deficit.

Early direct payments from the EU budget to farmers in H1 this year prevented a sharp deterioration of the general budget (headline figures) in January-July. But unless significant structural and cohesion funds are disbursed in August-December (which is a high target, even after the national EU funds management bodies were licensed recently), the full-year budget deficit — both national and total — will exceed 3% of GDP in 2017.

Filtering out the effects of the transfer of funds from the EU budget, the national budget posted a RON3.90bn (0.5% of GDP) deficit in January-July compared to a surplus of RON3.25bn (0.4% of GDP) last year.

The 0.9% of GDP deviation from last year’s budget deficit indicates significant fiscal slippage likely to exceed 1% of GDP in the full year (from the 2.4% of GDP deficit last year).

Revenues to the total budget increased by 9.0% y/y or by RON11.6bn in nominal terms in January-July to RON141.2bn. Roughly half of the increase was generated by more transfers from the EU budget: RON6.7bn this year versus RON1.3bn last year. The money was mostly direct payments to farmers, matched by transfers to final recipients on the expenditures side. An even stronger contribution to the 9% y/y rise in budget revenues came from the 16.4% higher contributions paid to the social security and public health funds (RON40.4bn versus RON34.7bn last year). This was an effect of higher wages. 

The expenditures under the total budget increased by 11.4% y/y (RON15.0bn) to RON146.4bn in January-July. The payroll increased by 20.3% y/y, or by RON6.6bn, to RON39.3bn. As a share of GDP, the public sector payroll increased from 4.3% last year to 4.8% this year, in January-July. Social security contributions increased at a slower pace, by 10.7% y/y, but this still added RON5.0bn to the total expenditures that measured 6.4% of GDP this year versus 6.2% last year, in January-July.