The budget deficit is estimated at 7.9% of GDP in 2024, according to ESA methodology

The budget deficit estimated for 2024, according to the ESA method will be 7.9% of GDP, level at which the adjusting route will be established, according to the project regarding the National budget structural plan on medium term 2025 – 2031, published on Friday night by the ministry of finances.According to the quoted source, the impact of the adopted measures last year is materialized in collections, current income being growing by 1.1percentage point of GDP for the first eight months, and at the level of Q4 the collections will reflect the impact of the fiscal measures adopted recently, namely the increase of the monthly non-taxable ceiling, from 2,000 lei to 3,000 lei in the case of the pensions income, starting with the October income.Thus, over the period 2024-2026, current budget revenues are projected to increase from 29.6% of GDP in 2024 to 30.5% of GDP in 2025, reaching 31% of GDP in 2026.   Tax revenues are projected to increase by 1.1 percentage points in 2025 as a share of GDP compared to 2024, reaching 17.23% of GDP, including the impact of the Tax Reform. From 2026 onwards, revenues are projected to increase by 0.5 per cent of GDP and from 2028 by 0.7 per cent of GDP compared to 2025. Against this background, tax revenues are projected to reach about 18% of GDP by the end of the forecast period.   As regards the budget expenses, the estimates at the basis of the projection are : gradual reduction as a percentage of GDP of personnel expenditure from 9.3% of GDP in 2025 to 8.3% of GDP in 2031, this being possible through a strong moderation of the growth of personnel expenditure without exceeding the limits of personnel expenditure that are foreseen in the plan for the forecasting period 2025-2031 as well as with the observance of the legislation on fiscal-budgetary responsibility, the introduction of performance indicators in the field of wages, expenditure norms, but also through the restructuring of the system of incentives granted to certain categories of public sector staff; maintaining a share of about 5 per cent of expenditure on goods and services over the period 2025-2031, i.e. a slight reduction as a share of GDP of these expenditure categories over the entire forecast period; reducing the share of social assistance expenditure by 12.7% of GDP in 2025 at 10.7% of GDP in 20231 through the implementation of the provisions of the new law of public pensions, as well as the legal provisions in the domain of special pensions; the increase of the share of expenditure with investments in GDP at 7.9% of GDP in 2025 and 7.7% of GDP in 2026, 6.5% in 2027, followed by a share in GDP at over 5%, taking into consideration that in 2027 the period of implementation for the PNRR is over; the expenses with interests grow from a share of 2% of GDP in 2025 to a share of 3.5% of GDP in 2031 as a result of the increase of the share of the public debt in GDP during the period of adjustment of the budget deficit necessary to finance the projects of public investments. Thus, total expenditure is estimated to reach a maximum in 2025, of 41.2% of GDP mainly due to the increase of public investments at a record level, estimated at 7.9% of GDP. Later, the share of public investments is gradually reduced to the level of under 35.9% of GDP at the end of the prognosis horizon.The document shows the rate of foreign exchange EUR/dollar is kept constant during the period of prognosis under analysis, while the hypothesis regarding the evolution of the interest rate for long term are kept at a constant level of 6.9% of GDP and the rate of interests on short term have a slight trend of going down from 5.0% of GDP in 2025 to 4.4% of GDP in 2031.The estimates for the public debt-to-GDP ratio indicate an upward trend until 2029 (62.6% of GDP), corresponding to the period of implementation of reforms and investment projects, including those realised under the National Recovery and Resilience Plan, followed by a downward trend thereafter as a result of a more marked fiscal consolidation in ESA deficit terms, falling below the 60% of GDP threshold by the end of the analysis horizon. At the same time with the adjustment of the budget deficit the deficit of the current account will gradually be reduced at 5.6% at the level of 2028, namely by 2.1 percentage points in GDP as compared to 2024.Since April 2020, Romania has been in the excessive deficit procedure (EDP), as a result of exceeding the 3% budget deficit limit set in the Stability and Growth Pact (SGP) in 2019. According to the EU Council recommendation of June 2021, Romania was to exit the excessive deficit procedure by 2024 at the latest. The budgetary adjustment over the period 2021-2022 was in line with the Council recommendation.