by BCR Expert’s Column
Fiscal consolidation on track
The monthly deficit of the consolidated state budget increased by RON 100mn in July, putting the cumulated figure for January-July to RON 11.4bn or the equivalent of 2.1% of GDP (cash standards). VAT and excise revenues went up significantly, due to last year’s hike and improved collection, while personnel and social expenditures are still in negative territory. The government finds itself in a comfortable position in reaching the annual budget deficit target agreed with the IMF (4.9% of GDP- ESA). It is worth noting that Romania’s public finances are in a much better condition compared to other EU countries. The significant adjustment of the budget deficit was supported only by structural reforms, with almost no role played by economic growth.
Outlook: The government will continue to struggle to clear up the huge backlog of arrears as much as possible to come closer to the ambitious budget deficit target agreed with IMF/EU for 2012; we do not rule out a fiscal slippage in 2012, but the current IMF/EU arrangement is a guarantee that the cabinet will not be overstepping reasonable limits in an election year. We foresee a further decline in the budget deficit, to around
EU funds – a breath of fresh air for the Romanian economy
Four years after the country became an EU member in its own right, 2011 was the first year to witness a notable increase in EU funds absorption (7m11: 2.6x vs. 7m10). An increasingly large number of contracts have been endorsed by the Management Authority and are now waiting for EU compensation to defray part of the costs. In addition, the center-right cabinet has lately showed greater determination in pushing ahead with the big long-delayed infrastructure projects (Corridor 4), which will over time add to the overall absorption of European money. Romania has so far managed to take up a meager 13% (2007 to July 2011) according to the MinFin; if the country manages to maintain this growth rate, then the entire 2007-13 allocation will have been used by end-2013, which would be quite a remarkable performance.