Romania’s budget deficit will amount to 8.6% of GDP in 2024 (cash methodology), according to a GEO draft published by the Ministry of Finance and adopted by the Government on Wednesday.
The government raised the deficit target to 6.9% of GDP in the budget rectification at the end of September. Another document released later suggested the executive could expect a deficit of 8% of GDP, in line with market estimates.
The GEO project put up for public debate on Monday proposes increasing the budget deficit ceiling to 8.58% of GDP, as well as the public debt ceiling to 54.5% of GDP. Also, the project stipulates the increase of the ceiling of personnel expenses from 9.3% of GDP (the ceiling from the rectification) to 9.4% of GDP.
According to the document, the general consolidated budget deficit could amount to RON 151.79 billion in 2024.
The budget deficit level is relevant because Romania must annually borrow this difference between the state’s revenues and expenditures, and then pay the interests related to these loans from future years’ budgets.
According to the cited official document, „the primary balance of the general consolidated budget is minus RON 114,572.2 million”. The primary balance refers to the total deficit minus interest payments. It follows that Romania will pay this year over RON 37 billion in interest (the general consolidated budget deficit of RON 151.8 billion minus the primary balance of RON 114.6 billion).
Government admits it cannot say how much it collected to the budget through „digitalization”
Although the GEO draft does not provide a solid explanation regarding the sources of the additional deficit, it stipulates the elimination from the budget of digitalization revenues on the grounds that they cannot be clearly identified in the implementation.
This refers to the RON 10.5 billion that should have gone into the „National Account for the Digitalization Revenues Record”. The disappearance of this amount from the revenue chapter could explain the deficit increase.
„For technical reasons concerning budget execution, the mechanism created did not offer the possibility of a distinct representation of the sums resulted from digitalization measures, even though the budget execution account shows improvements on every indicator from the budget classification of tax revenues, subsequently the decrease of this revenue account by RON 10.5 billion is proposed”, states the substantiation note of the GEO project.
How the deficit exploded in 2024
At the beginning of the year, the Government estimated a deficit of only 5% of GDP, that is RON 86.6 billion. Upon rectification, it was revised to 6.9% of GDP, i.e. RON 122.6 billion. The Ministry of Finance subsequently published a review of the 2024 funding requirement which showed the deficit to be close to 8% of GDP. The funding requirement includes:
- the amount of loans that Romania must take out to roll over the public debt (amount known since the beginning of the year and which meets no reason to be altered along the way) and
- the amount of loans needed to finance the budget deficit (the difference between the amounts collected by the state in the form of taxes, contributions, European funds, etc. and public expenditure: salaries of state employees, pensions, welfare, investments, subsidies, etc.).
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