Snap29 May 2018Updated 7 months ago

Romania: Budget deficit widens as spending balloons

This is the first budget deficit after four months since 2014 and the main problem seems to be ballooning expenditures


The budget deficit has widened after four months to -0.65% of GDP from -0.48% at the end of the first quarter. This compares with a surplus of 0.16% at the end of April 2017. 

Budget revenues were up by 10.7% year on year with fiscal changes late last year and at the start of this year making each item comparison less relevant. Budget expenditures were up 21.5% up YoY mainly driven by a sharp rise in the wage envelope by 20.4% YoY, versus the 11.6% full-year plan. 

Social assistance spending increased by 10.8% YoY with another 10% hike in pensions by mid-year versus the full-year planned increase of 5.9%. Public sector wages and social assistance hit 61.4% of total budget expenditures after four months versus 57.2% budgeted for the whole year. This limits the room for response by the government, provided there is a requirement for fiscal intervention. 

There is a huge increase in capital expenditures too with an important part relating to defence spending.

Year-to-date budget deficit as % of GDP

MinFin, ING
MinFin, ING

With the economy growing below government expectations and ballooning quasi-permanent spending, the mid-year budget revision could be rather ample, provided the government remains committed to the -3.0% of GDP budget threshold.