Romania Watch: Public deficit still large in Q1, to decrease going forward
Our estimates place the public budget deficit in Q1 2021 at 8.9% of GDP, higher than in Q4 2020 but lower deficit levels should be recorded in Q2-Q4. As a result, the public deficit could reach 7.2% of GDP in 2021 vs 9.7% in 2020 with a growing chance for an even lower value.
| Public budget deficit decreased in February and March following the spike in January |
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| Ministry of Public Finance, RBI/Raiffeisen Research |
| Note: In-house seasonally adjusted data |
The public budget deficit reduced further in March. According to our in-house seasonally adjusted data, the public budget deficit stood at RON 7.0 bn in March, below the levels recorded in February (RON 7.8 bn) and in January (RON 10.4 bn). The decline of the public budget deficit in March was explained by a slight increase in public revenues and a decrease in public expenses.
According to our estimates, the public budget deficit from Q1 2021 amounted to around 8.9% of GDP. This was above the level recorded in the last quarter of 2020 (8.2% of GDP), but below the levels recorded in the first three quarters of 2020. Going forward we expect the public budget deficit to decrease in Q2-Q4 2021 and estimate it to reach 7.2% of GDP (cash terms) this year, down from a level of 9.7% of GDP recorded in 2020. However, a lower level should not be excluded. Also, the Prime Minister stated last week that public revenues collected so far this year are higher than those estimated in the budget plan and that the public deficit could decrease in 2021 to a level below 7% of GDP.
According to our in-house seasonally adjusted data, public revenues collected from the domestic economy have outpaced their pre-pandemic level. So, their level in March 2021 was 2.4% above the average level for January-February 2020. At the same time, revenues collected from taxes and social security contributions in March 2021 were 5.5% above the pre-pandemic reference (average value for January-February 2020). The growth of public expenses this year has been limited by the government’s decision to freeze wages in the public sector and pensions at their level from end-2020, and this also supports the fiscal consolidation process.
On the other hand, public investments were elevated in the first quarter of this year, being 37.7% higher than in the similar period of 2020. Thus, according to our seasonally adjusted data, public investment spending in the first 3 months of the year totaled 5.6% of the GDP.
| Public budget revenues outpaced their pre-pandemic level |
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| Ministry of Public Finance, RBI/Raiffeisen Research |
| Note: In-house seasonally adjusted data |
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The first GDP data for Q1'21 will provide an account of the economic development at the beginning of the year. The results will be very different for the individual countries and will be a reflection of the extent of the business restrictions. The upcoming central bank meetings (USA, Hungary) will not bring any new impulses. In contrast, the Russian Central Bank hiked boldly by 50bp at the end of this week. Also worth to mention: Geopolitical risks in the CEE region have calmed down this week as the Russian army was ordered back from the Ukrainian boarder. |