Romania's public deficit eases to 2.95% of the country's GDP during the first four months of the year.
Romania's General Government Budget Deficit Narrows in January-April
Romania's general government budget deficit contracted by 2.3% year-on-year to 56.0 billion Romanian Leu (EUR 11.1 billion) in the first four months of 2025, according to data released by the Finance Ministry. The deficit-to-GDP ratio improved slightly to 2.95%, but the country still missed its deficit target of 7% of GDP for the year.
Despite the progress, Romania faces significant fiscal challenges. The deficit is expected to rise towards the target of 7% or higher unless additional corrective measures are taken. The government intends to focus on consolidating revenues and further reducing expenditures to achieve the deficit objective.
Finance Minister Tanczos Barna highlighted the 16% year-on-year increase in revenues in April, driven primarily by better VAT collection. Public expenditures declined by 3.9% year-on-year in the month. Barna maintained that securing revenue sources and maintaining the investment pace, while paying salaries and pensions, which increased last year, is a considerable challenge for the government.
One factor impacting the budget execution was high-base effects, with some analysts suggesting the true deficit improvement might be more modest than reported. According to Profit.ro, after accounting for the advance payment of May pensions in April 2024, the real deficit for January-April 2024 was actually 2.7% of GDP, pointing to a year-on-year advance in 2025. However, granular data show broader improvement in budget execution during April across both revenues and expenditures.
Revenues increased by 9.4% year-on-year to 199.9 billion Romanian Leu in the first four months of 2025, compared to a 6.9% year-on-year increase in Q1. Tax revenues surged by 12.8% during the period, reflecting a doubling of dividend tax revenues following the distribution of profits related to 2024. Social insurance contributions rose by 10.2% to 67.69 billion Romanian Leu, but the increase was less pronounced than the dynamics of the total wage fund in the economy.
Expenditures increased by 6.6% year-on-year to 255.9 billion Romanian Leu, with the expenditure-to-GDP ratio edging down slightly to 13.5%. Personnel expenses, including salaries and pensions, rose by 12.4%, while expenses on goods and services remained largely unchanged from the previous year. Social assistance expenditures increased by 2.3%, with higher expenditures on public pensions and energy bill compensation schemes.
Public investment, including domestic and foreign-financed projects, grew by 3.6% year-on-year, but expenditures for projects financed from non-reimbursable external funds decreased by 5.7%.
The interest on public debt increased by 48% year-on-year to 20.4 billion Romanian Leu, accounting for 8.0% of total expenditures.
In conclusion, Romania's budget execution in the first four months of 2025 indicates moderate fiscal consolidation achieved through increased current revenues and prudent expenditure management, particularly in investment expenditures. Ongoing challenges include high interest rates and upward pressures from social spending. The new government will need to take steps towards consolidating revenues and significantly reducing expenditures to secure long-term stability and investor confidence.
[Souce: Romania Insider]
(Photo Source: Alexandru Marinescu/Dreamstime.com)
The moderate fiscal consolidation in Romania's general government budget is primarily attributed to increased revenues, particularly VAT collections, and prudent expenditure management in business sectors. However, the government will need to focus on additional corrective measures to reach the deficit target of 7% of GDP for the year and secure long-term stability, as well as investor confidence.
