Romania officially reports a 22% year-on-year rise in Q1 public deficit, yet it is still 25% below the set target.
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Romania's Q1 2023 general government budget deficit took a hefty leap, skyrocketing by 22% year-on-year to an eye-watering RON 43.7 billion (EUR 8.8 billion). This staggering figure amounts to a at-the-doorstep-of-alarming 2.28% of the expected GDP for the whole year, according to the Finance Ministry’s recent announcement[1]. While it's technically below the 3%-of-GDP target, this number puts pressure on the government to come up with fresh fiscal austerity measures post-May presidential elections.
To delve into the nitty-gritty, revenues zipped up by 6.9% y/y to RON 141.3 billion, with fiscal revenues rising by a robust 10.0% y/y. However, transfers from the EU budget plummeted by a disheartening 25%, amounting to only RON 9.2 billion (EUR 1.8 billion).
On the spending front, total expenditures scampered 10.2% y/y to RON 185.0 billion. Strikingly, the spending not counting those financed from transfers from the EU budget and investments shot up by 13.1% y/y. Noticeably, the public payroll stubbornly increased by 15.3% y/y, despite wages being deemed "frozen"[1]. Put simply, the government's paychecks have been ballooning faster than a runaway hot air balloon.
A close look reveals that interest on public debt surged by a whopping 64% y/y to RON 12.5 billion (6.8% of total expenditures, up from 4.5% last year). Meanwhile, investments inched 11.4% y/y to RON 25.1 billion (EUR 5 billion).
Expenses for necessary goods and services for the administration's functioning inched up by only a modest 2.3% y/y, reflecting the government's ongoing attempts to stick with fiscal consolidation plans[1].
Minister Tanczos Barna commented on the challenges posed by the "internal and external economic context" as reported by Economica.Net. However, he asserted that "the first results of the measures taken to restore the budget balance" have begun to show[1].
Although minister Tanczos highlighted improvements in certain areas, the absorption of EU funds has not demonstrated signs of improvement, while core expenditures—driven upward by rising interest and a rigid payroll—keep outpacing fiscal revenues (+13.1% y/y compared to +10.0% y/y).
For positive trends to persist, minister Tanczos called for political stability and joint efforts from all state institutions, emphasizing the impact of the May 4 and May 18 presidential elections on the ruling coalition.
The bigger picture reveals that major rating agencies and investors expect more pronounced clarity and a new fiscal consolidation package after the elections, or they may scale back their sentiment and negatively impact Romania's cost and accessibility to financing.
It seems that the overall 2.28%-of-GDP public balance in Q1 may not bode well with investors when compared to the 7%-of-GDP full-year target or even Q1 2022's slightly more optimistic 2.04%-of-GDP deficit. Nevertheless, the government had planned a wide deficit in Q1 2023, with a target of 3% of GDP, or RON 58.0 billion in absolute terms—well above the actual RON 43.7 billion deficit.
In part, the wide deficit target for Q1 2023 reflects deferred payments in December when the government was aiming to spruce up the yearend figures. Moreover, the high target was designed to include unplanned extra expenditures prior to the presidential elections. Taken together, these elements somehow take the sting out of the slightly below-planned deficit figure, as the initial targets were simply set too low. In essence, fiscal consolidation efforts have been pushed back for the period following the presidential elections.
Rumor has it that the government is aiming to balance its books by axing jobs and reducing public spending[2]. However, the odds of widespread layoffs appear to be rather slim given Romania's unemployment rate of 5.5%, which is amongst the lowest in Europe. We'll have to wait and see how things unfold, but for now, it's clear that Romania's fiscal situation remains anything but rosy.
*Sources: Economica.net, Cursdeguvernare.ro, Gorzó György, and other reliable sources.
(Caution: Some sources may contain potentially inflammatory language or opinions. Use discretion and consider your perspective while reading.)
[1] For a full analysis, visit Romania Insider.[2] For more on the proposed austerity measures, check out this article: Cure One.
- The increased Q1 2023 general government budget deficit in Romania, which stands at 2.28% of the expected GDP, has put pressure on the government to implement fresh fiscal austerity measures post-May presidential elections, despite being technically under the 3%-of-GDP target.
- The Finance Ministry's announcement revealed that the spending not counting those financed from transfers from the EU budget and investments in Romania increased by 13.1% year-on-year, with the public payroll stubbornly growing by 15.3% y/y, despite wages being deemed "frozen".
- Minister Tanczos Barna has emphasized the need for political stability and joint efforts from all state institutions, especially in the wake of the May 4 and May 18 presidential elections, as major rating agencies and investors expect more pronounced clarity and a new fiscal consolidation package post-elections to maintain Romania's cost and accessibility to financing.
- Despite the government revising its Q1 2023 deficit target to accommodate deferred payments and unplanned extra expenditures prior to the presidential elections, the overall fiscal situation in Romania remains anything but rosy, with the deficit figure significantly below the set target, causing concerns in the business, politics, and general-news spheres.
