Informal Insights into Romania's Budget Woes
Romania might reconsider its fiscal consolidation strategy due to the 2024 ESA public deficit surpassing the initial projection.
Romania's finances are taking a hit, and it's not looking good. According to reports from Profit.ro, the general government budget deficit has swelled to a whopping 9.24% of the country's GDP in 2024 - a significant jump from the 6.4-6.5% seen in the previous years, 2022-2023. This disconcerting figure comes before the European Commission's first estimate of Romania's 2024 deficit, due for publication on April 22.
If the Commission's estimate differs significantly from the government's, it could potentially force a rethink of the fiscal consolidation path they're on. Let's dive in to see why that's important.
The original fiscal consolidation plan, endorsed in October-November 2024, is based on a 7.9%-of-GDP ESA deficit for 2024. Under this assumption, Romania aimed for a 5.1% increase in the net primary (non-interest) expenditure for 2025, slightly ahead of the projected 5% GDP deflator.
However, with the deficit on the rise, the government has to find ways to trim costs. Their game plan? Cutting non-interest current expenditures to GDP ratio by 4.4 percentage points from 30.9% in 2024 to 26.8% in 2031 over the seven-year fiscal consolidation period.
But here's the rub: reducing the deficit isn't solely about cutting expenses. The government also needs to boost revenues. In their strategy, current revenues will contribute only 1.5 percentage points to the fiscal consolidation, rising from 29.6% in 2024 to 31.1% in 2031. That's a tiny fraction of the work needed to achieve their target of cutting the public deficit from 7.9% of GDP in 2024 to 2.5% in 2031.
The situation might not be as grim as it seems, though. The government's deficit target of 7% of GDP under both accounting standards is holding steady, despite the International Monetary Fund's (IMF) more pessimistic 7.8% cash deficit forecast for this year. But with public debt soaring and experts warning of further deficit deterioration in 2025-2026, urgent measures are needed. It remains to be seen what these measures might be, as a fiscal corrective package is slated after the May 2025 elections.
(Photo source: Nuthawut Somsuk/Dreamstime.com)
(Note: This article has been restructured for clarity and readability, and enrichment data has been selectively integrated to enhance understanding.)
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- Romania aims to increase the net primary (non-interest) expenditure by 5.1% in 2025, as per the fiscal consolidation plan endorsed in October-November 2024.
- The government plans to cut non-interest current expenditures to GDP ratio by 4.4 percentage points from 30.9% in 2024 to 26.8% in 2031 over the seven-year fiscal consolidation period.
- Despite the International Monetary Fund's (IMF) more pessimistic 7.8% cash deficit forecast for 2025, Romania's deficit target of 7% of GDP under both accounting standards remains unchanged.
