Budget deficit exceeded 4% of Gross Domestic Product after the first 10 months

Romania’s budget deficit exceeded 4% of Gross Domestic Product (GDP) after the first 10 months of this year, up from the 3.77% deficit reported at the end of September, but significantly lower than last year’s deficit in the midst of the pandemic, which stood at 7.01% of GDP at the end of October.

The Romanian government estimates a total deficit of 7.13% for 2021.

In absolute terms, the budget deficit was RON 47.98 billion at the end of October 2021, down from RON 74.04 billion in the same period of 2020.

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According to the Ministry of Finance, the evolution of the deficit was driven by:

• increase in budget revenue by 1 percentage point of GDP (y/y), mainly influenced by the advance in VAT receipts;
  a reduction in budget expenditure by 2 percentage points of GDP (y/y), mainly due to a decrease in the share of wage and social assistance expenditure in GDP.
• At the same time, investment expenditure was 2.71 billion lei higher in January-October 2021 compared to the same period of the previous year, and exceptional payments generated by the COVID-19 epidemic amounted to 11.36 billion lei, the Finance Ministry said.

Revenues

The revenues of the general consolidated budget totaled 308.61 billion lei in the first ten months of 2021, 17.1% higher than the level collected in the same period last year. This development was influenced both by the reduced collections in the comparable period of last year – as an effect of some measures to support taxpayers (postponement of payment deadlines, rebates and exemptions), and by the recovery of economic indicators, i.e. partial recovery of some categories of revenues (VAT, insurance contributions, income and profit tax). At the same time, the most significant nominal increases are noted for VAT and insurance contributions.

The receipts from tax on wages and income totaled 23.34 billion lei in the period Jan-Oct 2021, an increase of 15.7% (y/y), supported by the increase in receipts from tax on pensions (+47.7%), tax on dividends (+31.3%) and the single tax return (+20.6%). At the same time, the payroll tax revenue increased by 10.7% – higher than the 7.8% growth of the economy-wide payroll fund.

Insurance contributions recorded RON 105.00 bn in the first ten months of 2021, up 12.9% (y/y). As in the case of income tax, the evolution is higher than the dynamics of the wage fund and was influenced both by lower receipts in the comparable period of 2020 and by the partial recovery of contributions deferred for payment in the previous year.

Income tax receipts amounted to 18.57 billion lei in Jan-Oct 2021, up 27.8% (y/y). This advance was driven by the main component – corporate tax receipts from economic agents, with a positive dynamics of 30.8% (y/y).

Net VAT receipts recorded 64.40 billion lei in the first ten months of this year, up 35.2% (y/y). At the same time, VAT refunds amounted to 20.19 billion lei in the period under review, 10.0% above the level recorded in Jan-Oct 2020. The evolution of VAT receipts was influenced by the reduced base of last year – when the measures to postpone the VAT payment deadline were implemented, the partial recovery of VAT deferred for payment in 2020, and the recovery of the relevant macroeconomic base.

Excise revenue amounted to RON 28.62 bn in Jan-Oct 2021, up 14.6% (y/y). In terms of structure, there was a 15.6% increase in excise duties on energy products – mainly due to the normalization of fuel consumption compared to the reference period, and an 11.9% increase in excise duties on tobacco products, supported by the increase in excise duties on cigarettes.

Non-tax revenues totaled 23.44 billion lei in Jan-Oct 2021, up 2.1% (y/y), also supported by the dynamics of dividend revenues (+5.1% y/y).

The amounts reimbursed by the European Union on account of payments made and donations totaled 24.64 billion lei in the first ten months of 2021, up by 9.6 compared to the level recorded in the same period last year.

Expenditure

The expenditure of the general consolidated budget in the amount of 356.58 billion lei increased in nominal terms by 5.6% compared to the same period of the previous year.

In the first ten months of 2021, investment expenditure was 2.71 billion lei higher than in the same period of the previous year, while exceptional payments due to the COVID-19 epidemic amounted to 11.36 billion lei.

Personnel expenditure amounted to 91.84 billion lei, up 1.5% compared to the same period last year. As a share of GDP, personnel expenditure represents a level of 7.7% of GDP, 0.9 percentage points lower than in the same period of the previous year. Of the total staff expenditure, payments representing the risk incentive granted for COVID 19 amounted to 70.35 million lei, as well as other staff expenditure, including bonuses granted to medical and auxiliary staff involved in activities with patients diagnosed with COVID-19 of approximately 2,033.88 million lei.

Expenditure on goods and services was 47.72 billion lei, an increase of 6.8% compared to the same period last year. An increase is reflected in the state budget, i.e. 15.2% compared to the same period of the previous year, as well as in the budget of the Single National Health Insurance Fund by 8.9%, mainly, according to the data reported by the main authorizing officers, 5.6 billion lei of the total goods and services represent payments for medicines, sanitary materials, reagents and other products necessary for the diagnosis and treatment of patients infected with SARS-CoV-2 coronavirus, as well as payment for vaccines against Covid -19.

Expenditure on social assistance was 124.12 billion lei, up 6.7% compared to the same period last year. The evolution of social assistance expenditure was mainly influenced by the increase of the pension point from 1 September 2020 by 177 lei, i.e. from 1,265 lei to 1,442 lei. It also reflects the increase as of 1 September 2020 in the level of the guaranteed social allowance for pensioners from 704 lei to 800 lei, as well as the increases in the state child allowance as of 1 January 2020, as of 1 August 2020 which represents an increase in the allowance by approx. 20% higher than that paid in July 2020, as well as as as of 1 January 2021 which represents an increase in the allowance by approx. 16% higher than that paid in December 2020.

At the same time, payments continue on measures that have been taken on an exceptional basis, in the social and economic field, to mitigate the negative effects caused by the COVID 19 pandemic. Thus, by the end of October, 1. 742.66 million lei, i.e. 607.16 million lei for allowances granted during the temporary suspension of the individual employment contract at the initiative of the employer, 190.55 million lei for allowances granted to other professionals and to persons who have concluded individual employment agreements who interrupt their work due to the effects of SARS-CoV-2, 419, RON 89 million for amounts granted to employers for the settlement of part of the gross salary of employees who remain at work, RON 67.09 million for amounts granted to employers for the employment of certain categories of persons, as well as RON 457.96 million for allowances granted during the temporary reduction of activity for professionals and for persons who have concluded individual labour agreements under Law no. 1 /2005.

The settlement of social health insurance benefits for sick leave is also continuing in order to reduce the stock of outstanding sick leave payments, so that at the end of October payments amounted to 3,538.9 million lei.

Expenditure on subsidies amounted to 5.76 billion lei, a large part of which was allocated to transport, i.e. subsidies for passenger transport, as well as support for agricultural producers.

Other expenditure amounted to 6.04 billion lei, mainly representing amounts related to payment titles issued by the National Authority for Property Restitution, in accordance with the legislation in force, scholarships for pupils and students, other civil compensation, as well as allowances to parents for the supervision of children during the temporary closure of educational establishments.

Expenditure on projects financed by non-reimbursable external funds (including European Union grants related to agriculture) was RON 26.97 billion, 15.4% higher than the previous year.

Expenditure on investment, which includes capital expenditure as well as expenditure on development programmes financed from internal and external sources, amounted to 38.19 billion lei, an increase of 7.7% compared to the same period last year when it amounted to 35.47 billion lei. There is also a more pronounced increase in projects financed from external non-reimbursable post-derivative funds, accounting for 53.09% of total investment expenditure in the first ten months of 2021, 5.89 billion lei higher than in the same period of the previous year.

Also, 199.67 million lei were paid from the budget of the Ministry of Internal Affairs for the purchase of products – medical emergency stocks, including thermal scanners to combat the spread of SARS-COV-2 coronavirus infection.