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Budget deficit on the rise

Romania’s budget deficit has increased, but the Government says it will fall within the set range.

(foto: pixabay.com)
(foto: pixabay.com)

, 27.03.2024, 14:00

The warnings regarding the consequences of the growth of Romania’s budget deficit have become increasingly frequent and come from various directions, from European bodies, as well as from experts and analysts. There is nothing speculative about them, because they are based on numbers. The latest data in this regard were provided by the Ministry of Finance, according to which, after the first two months of the year, the budget deficit reached almost 29 billion lei, the equivalent of some 6 billion euros, which account for 1.67% of the Gross Domestic Product.

Compared to the same period last year, it is almost double. Total revenues in January and February were higher by more than 17 percent compared to the first two months of 2023, being mainly supported by the evolution of collections from insurance contributions, VAT, European funds, payroll tax and excise duties, but expenses were much higher, increasing by over 27%. “The deficit is not a catastrophe,” said Prime Minister Marcel Ciolacu, in an attempt to ease analysts’ fears. He believes that, at the end of the year, Romania will fall within the established range.

The budget was built on a budget deficit estimated at 5 percent of the GDP, which the opposition termed, however, as unrealistic, stating that the revenues were overestimated and expenses underestimated. The pace of growth will be sustained, the prime minister is convinced, optimistically anticipating that Romania will have the highest economic growth in Europe this year. And it will not be an economic growth based on consumption, it will continue to be triggered by investment, Marcel Ciolacu believes.

On Monday, the European Commission published an in-depth analysis for 6 of the member states, including Romania. In our case, the community executive warns that Romania continues to face vulnerabilities related to the accounts of public finances and the external balance. High public and current account deficits, as well as the high inflation rate, which are all above pre-pandemic levels, make the economy potentially vulnerable to shocks, the European Commission points out. It notes that progress were made in narrowing the current account deficit in 2023, mainly on the back of monetary policy tightening and weaker private consumption, but with policies unchanged, risks related to its external position are expected to stay high in the following years.

The document also reads that the pursuit of a credible fiscal consolidation strategy is the key priority of the policies aimed at mitigating the risks to the stability of the economy. This strategy will require the full implementation of the fiscal-structural reforms included in the National Recovery and Resilience Plan, especially those aimed at a structural increase in government revenues and a much stricter budget execution, states the analysis of the European Commission. (MI)

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