The new rectification draft bill envisages a larger deficit increase than originally thought. Thus, it would increase by 3.266 billion lei, previously (in the initial project) being about 3.224 billion lei. Basically, the authorities decided to increase the expenditures by 18.790 billion lei (previously it was 18.747 billion lei). On the revenue side, the same estimated amount remained, of 15.5 billion. It is about the general consolidated budget.
Therefore, the budget deficit at the end of the year could be 83.8 billion lei, according to the new rectification project, if no changes occur or things do not change after the second rectification this year. In the initial project, the amount of 83.757 billion lei was estimated.
As a percentage, it would also be a deficit of 7.13% of GDP by the end of the year (as in the initial project), decreasing from 7.16%, but this is because it refers to a higher nominal GDP estimated by National Strategy and Forecast Commission (CNSP).
As for the state budget, the expenditures increase, on the balance, by the amount of 10.017 billion lei (previously it was about 9.975 billion lei).
- Personnel expenses increase by 235.1 million lei (previously the amount was 225.3 million lei)
- Expenditures on goods and services increase by 1.641 billion lei (previously it was 1.636 billion lei)
- Expenditures with subsidies increase by 412.9 million lei (previously they were 377.9 million lei)
- Transfers between public administration units increase by 1.541 billion lei (previously it was 1.504 billion lei)
- Other transfers increase by 2.291 billion lei (previously they were 2.263 billion lei)
- Expenditures on social assistance increase by 15.9 million lei;
- Capital expenditures increase by 436.3 million lei (previously they were 432.1 million lei).
Fiscal Council slams the new budget revision draft
The Fiscal Council has slammed the draft budget rectification, saying it weakens the budgetary consolidation as announced for 2021. The CF warns that this budget rectification is unique in the history of rectifications from 2010 to the present by the magnitude of the positive rectification of budget revenues and expenditures.
“The large-scale revision of the budget revenues (increases of 17.6 billion lei) in the rectification draft has two main sources: the incorporation of the recovery of taxes postponed to payment by companies in the revenue forecast (not jointly taken into account as a result of a conservative approach of the Public Finance Ministry) and the favorable revision of the macroeconomic framework – forecast economic increase of 7 pct from the initial forecast of 4.3 pct,” the Fiscal Council argued.
The Fiscal Council deems plausible the updated forecast of budget revenues, less the amounts coming from the rental of frequency bands (2.5 billion lei, respectively 0.21 pct of GDP) on which it considers that there are relevant risks that these revenues will not be achieved.
Under the conditions of the more favourable evolution of the economy and the higher amount of revenues from the recovery of deferred taxes, an optimal and achievable level of the budget deficit ratio should, in the Fiscal Council’s view, have been significantly below 7 pct of GDP – around 6.5 pct of GDP. Such a level is not plausible to be reached, given the major slippage on the budget expenditure side.
“It is also to be considered the suitability of new investment expenditures from the public budget’s own resources, under the conditions of a high budget deficit and the stringency of the budgetary strengthening in the following years. This budget amendment is unique in the history of the amendments evaluated by the Fiscal Council, from 2010 to the present, due to the magnitude of the positive rectification of budget revenues and expenditures (their increase being of approximately 4.8 pct compared to the previously proposed values). In this rectification, amounts higher than the increase in the scheduled revenues are allocated to the supplementing of the expenses,” the Fiscal Council adds.
Covering deficits in flows through indebtedness can also be a risk generator for the sustainability of the external position of the Romanian economy. “For these reasons, corroborated with the National Statistics and Prognosis Committee (CNSP)’s forecast of an external deficit in significant reduction – but without specifying the determining factors – we can conclude that the current information raises with stringency the problem of adjusting the imbalances of the Romanian economy.”
Yet, the Council argues that drawing EU money could be a solution to build a fiscal space, which would improve Romania’s financial creditworthiness.