Budget deficit like in pandemic times

Romania’s budget deficit is close to the one in 2020, the year of the COVID-19 pandemic

Bogdan Matei, 10.12.2024, 13:50

Romania’s budget deficit in the first 11 months of this year reached 7.11% of its Gross Domestic Product (GDP), over EUR 25 bln, according to information obtained by the Romanian media. The government’s deficit target for 2024 is 8.58% of GDP, over EUR 30.5 bln, which means that substantial spending is planned for December as well. A higher budget deficit as a share of GDP was most recently recorded in 2020, the year of the COVID-19 pandemic, when the indicator stood at 9.6%.

The deficit is the difference between the state’s lower revenues and the higher expenses it must cover. Since the government does not have this money, it has to borrow it. The higher and longer the deficits, the more alarming the public debt growth rate.

Together with slower economic growth, as expected for Romania in the coming years, large budget deficits can lead to alarming situations, such as the one forecast for 2031. For that year, the fiscal plan stipulates that Romania will pay 3.5% of GDP (EUR 20 bln) in interest on government debt, as opposed to 2% today.

Official data and data collected by the press show that the new government will take over a difficult economic situation: a huge budget deficit, interest on government loans that have broken the European Union record, and European funds partly suspended.

At the moment, the incumbent government, comprising the Social Democratic Party and the National Liberal Party, cannot draft the budget law for next year. With the new parliament not yet convened, the future parliamentary majority, on which several budget chapters depend, is not clear. And without a national budget, city halls cannot prepare their own budgets, and citizens will immediately feel the effects.

The Liberal finance minister Marcel Boloş acknowledged that “political instability is creating difficulties with regard to the strategy for borrowing on foreign markets to ensure the financing of the budget deficit and public debt, as the budget for 2025 cannot be finalised.”

The Social Democratic PM Marcel Ciolacu said in recent months that the colossal loans taken out by his executive team were primarily intended for investment. He mentioned the example of Western European countries such as Portugal, Spain or Italy, which went into massive debt before creating their remarkable present-day infrastructure. Commentators say, however, that much of the deficit is due to electoral measures—e.g. substantial increases in pensions and salaries in the public sector—implemented by the government in 2024, which in Romania was a year with all types of elections: elections for the European Parliament, as well as local, legislative and presidential ballots. (AMP)