The Fiscal Council (CF) recommends the government to limit the expenses from own resources for projects with EU financing, in the context of repayments being blocked, and to strictly control the spending of local authorities, in order to avoid the risk of not meeting the budget deficit targets set for this year.
“In the Fiscal Council’s opinion, meeting the budget deficit target of 2.2 pc of the GDP based on a cash methodology, respectively maximum 3 pc of the GDP on the ESA95 methodology in December 2012 requires a very strict control of expenses in the second half of the year, especially at the level of local authorities (also given the upcoming general elections) and strengthening the efforts of improving the tax collection process, especially in terms of excise duties,” reads the document.
According to the Council, given the extended suspension of repayments by the EU regarding the European non-reimbursable funds for a number of important operational programmes and the payments made in the first half of the year for projects with financing from non-reimbursable external funds (RON 6.37 bln) much superior to the incomes effectively received from the EU during the given interval (RON 3 bln), authorities must substantially slow down the increase of this kind of expenses in the second half of the year, in order to avoid endangering the budget deficit target, an acceleration being possible only if the effective repayments from the EU are rapidly unblocked.
The budget for 2012 provided incomes pertinent to the absorption of EU non-reimbursable funds worth RON 12.53 bln and expenses of RON 11.64 bln, while the budget rectification provides incomes of RON 10.67 bln and expenses of RON 10.86 bln.
The Fiscal Council also presents a table with the cash flows in the relation with the European Union, and the available data place Romania on the last place in Europe, regarding the absorption. Out of an annual programme of structural and cohesion funds absorption worth EUR 3.78 bln, Romania absorbed in the first six months approximately EUR 713 M, slightly above 18 pc of the total, Mediafax informs.
CF data reveal a better performance in other segments. A situation much above estimations was registered at the European Agricultural Guarantee Fund, where Romania received EUR 910.7 M, 63 pc more than the programme for the entire year.
Current level of arrears, even higher than at the beginning of the crisis, in 2008
As for arrears, CF mentions that the targets set for March and June 2012 have been missed in terms of local budgets, of the state budget and of state social insurances budget. “The arrears monitored by the IMF (for delays above 90 days) advanced by approximately RON 205 M during March-June 2012, an increase almost completely generated by the arrears to local budgets, thus returning, after the slight progress registered in 2011, to the level of December 2008,” reads the document. The issue of arrears to local budgets appears as a recurrent structural issue and mainly reflects a lack of financial discipline and problems in enforcing the Law of Local Public Finance (Law 273/2006, with subsequent modifications and completions), CF adds.
In this context, the Fiscal Council appreciates the decision made by the Ministry of Finance to increase – through the budget rectification – the sums withheld from the value-added tax for balancing local budgets for 2012 with the sum of RON 512.98 M, of which RON 500 M are allotted to counties and the city of Bucharest in view of repaying the arrears of local authorities.
The Fiscal Council mentions that the decisive measures aimed at preventing the accumulation of arrears by public authorities are even more necessary as, starting March 2013, EU member states will implement the EU Directive 7/2011 against delayed payments in commercial contracts.
Reserve fund increases by RON 232 M
The reserve fund of the government will be more than doubled through the budget rectification, from RON 227 M to RON 559 M, but the destination of this money is still unknown, reveals the Fiscal Council, which demands increased transparency in how this money is used.
The analysis of the budget rectification shows that the sums allotted to investments will lose RON 2.07 bln, excluding the impact of compensation schemes (the decrease is of RON 1.3 bln, if one takes into consideration the raw data, which include the impact of swaps). The draft budget rectification provides an increase of incomes to the general consolidated budget by RON 0.62 bln, to RON 195.97 bln, and of expenses by RON 3.069 bln against the initial programme, to RON 209.63 bln, simultaneously with modifying the budget deficit from 1.9 pc to 2.25 pc of the GDP.