Romania’s consolidated budget posted a deficit of RON14.8 billion, representing 2.5% of the gross domestic product in December 2012, after being kept under control in the first 11 months of 2012.
But this time the budget deficit was mainly triggered by other factors – the temporary freezing of EU refunds as a result of problems from previous years, the downward revision of nominal GDP and the fact that the targeted fiscal revenues were not met.
In the past the budget deficit increase had been due to the authorities spending in excess towards the year.
“The fiscal consolidation process continued in 2012, with the budget deficit down by almost 40% against 2011, from 4.3% of GDP to 2.5%. Additional negative factors on the budget deficit were the temporary freezing of refunds of EU funds as a result of deficiencies found in previous years and because of the downward revision of the nominal GDP,” the Finance Ministry explained.
What is alarming is that revenues from the profit tax fell 20% against December 2011, VAT revenues fell 11%, the income tax fell 6% and social contributions by 8%. One explanation for the lower fiscal revenues could be last year’s extended winter holiday, linking Christmas to New Year’s. Data on retail for December, which will emerge in February, will be relevant in this regard.
The international institutions complete their review mission in Romania on Monday, and the precautionary agreement, which was supposed to end in spring, will be extended by a few months because of Romania missing a set of targets agreed for 2012 and because of failing to conduct planned privatizations and structural reforms.
The Fiscal Council warned back in the summer of 2012 that risks concerning the 2012 deficit target are significant in the absence of major correction measures in the second half of the year, because of problems related to EU funds.
“We have warned that the biggest risk for budget execution were EU funds. We’ll have to see how the IMF sees this situation,” says Ionut Dumitru, president of the Fiscal Council.
He says the major problems related to accessing EU funds should also be a concern this year.
“EU funds are a risk for 2013 as well. As far as public investments are concerned, own resources are set to be replaced by EU funds this year. (…) The Finance Ministry has provided for a buffer in case planned revenues from EU funds are not met,” he adds.
(English version by Daniela Stoican)