Page 14 - bne_newspaper_June_07_2019

Southeast Europe
June 7, 2019 www.intellinews.com I Page 14
Romania's budget deficit exceeds worst expectations
Iulian Ernst in Bucharest
Romania posted a 1.1%-of-GDP budget deficit
in January-April, nearly twice as wide as the 0.64%-of-GDP deficit posted in the same period last year, after the gap nearly quadrupled in April when it soared by 0.58% of GDP.
Prime Minister Viorica Dancila has responded
to the growing deficit by appointing insolvency lawyer Remus Borza as her economic advisor, and sacked the head of the tax collection agency, ANAF, as the European Commission's 3.5%-of- GDP full year deficit forecast seems subject to upside risks.
Even if fiscal data for a single month of the second quarter might not be fully relevant, the rising public payroll and social security leave very little fiscal room for capital expenditures and the expected re- covery in the use of cohesion funds will predictably come at the cost of more pressure on the budget deficit because of the co-financing costs.
The government targets a 3%-of-GDP budget deficit this year and looking at it on a proportional basis the 1.1%-of-GDP fiscal gap for the first
four months might indicate the target would not be exceeded by much. But, seasonally, the gap is small in the first part of the year. Consequently, April fiscal data support the European Commission’s projection of a 3.5%-of-GDP deficit for the full year, which is close to the 3.4%-of- GDP forecast issued by Fitch.
Upward risks are significant, despite the tough measures announced by Borza. He pointed to real problems and appropriate solutions such
as cutting employment in the public sector and cutting benefits — but he said this in his first day on his new job while, politically, such steps will be hard to take with the presidential election approaching in the autumn.
Borza’s tough approach at state hydropower company Hidroelectrica as the company’s insolvency lawyer led to lawsuits with the company’s employees, which would be politically unacceptable where government employees are concerned, especially as they expect further pay hikes after years of similar steps.
At the same time, Dancila replaced the head
of ANAF, Mihaela Triculescu, who had served
in the position for only five months, with Mirela Calugareanu. This visibly brings more expertise, but cannot solve the deep problems at the agency in itself. Unlike Triculescu, appointed with no prior experience reportedly at the request of Borza’s predecessor Darius Valcov, the new ANAF head has served in the public administration since 2 001 and even headed ANAF during the cabinet
of Mihai Tudose in 2017.
Taking over at ANAF, Calugareanu will have to meet the expectations of Finance Minister Eugen Teodorovici, who wants revenues to exceed the target set in the budget. Romania’s government set a 28%-of-GDP target for revenues when drafting the budget for 2019, but is really counting on 30%-of-GDP revenues, according to comments from Teodorovici.
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