Romanian general government budget sees deficit expand to 1.4% of GDP

The general government budget saw its deficit expand to RON14.7bn (1.4% of GDP) in January-May, according to figures of the finance ministry. The deficit level was visibly higher, growing by 80.6% y/y, compared to RON8.1bn (0.9% of GDP) in the same period of 2018. In May alone, the deficit added up to RON3.3bn (0.3% of GDP), growing by as much as 57.6% y/y.

Revenue growth reached 11.6% y/y in January-May, driven primarily social and health insurance contributions, which jumped by 18.5% y/y. The development is not that surprising, as persistent labor shortages have been keeping unemployment low and wage growth high, though not high enough to push living standards too much. At any rate, this has provided a steady revenue intake, much higher than that of traditional taxes, where growth was only 7.7% y/y. While VAT revenues remained the primary source of revenue, up by 12.8% y/y over the period, there have been felt some effects of economic slowdown, though not as big as in Central Europe, for instance. Direct taxes have decreased, mostly because of policy change, as the unitary wage bill led to temporarily lower personal income tax revenue.

Expenditure growth remained much stronger, however, up by 16.3% y/y in January-May. Spending on personnel rose by 24.6% y/y, reflecting public sector wage hikes, while transfers were up 13.6% y/y, being the main spending growth drivers. Social transfers were up by 15% y/y, reflecting pension hikes. Given how much spending has expanded, it already seems out of control and poses serious risks to budget targets. Still, targets were seen as unrealistic in the first place, with very optimistic growth projections and potential for overspending all over.

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