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General gov't deficit reaches 4.17pct of GDP in H1 2020

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 Romania's consolidated budget showed a deficit equivalent to 4.17% of the projected 2020 gross domestic product (GDP) in the first half of the year, compared to a gap of 1.94% of GDP in the like period of 2019, the finance ministry said on Tuesday.

Almost half of the deficit was generated by exceptional spending by the government in order to curb the economic effects of the coronavirus pandemic, the finance ministry said in a press release.

The deficit widened also due to a drop in revenue during the March-May period, as the coronavirus pandemic prompted businesses to defer tax payments. At the same time the government  stepped up value-added tax refunds to inject liquidity into the private sector and offered tax discounts to companies and individuals. The government spent approximately 5.86 billion lei on exceptional payments due to the pandemic, the ministry said.

The consolidated budget deficit totalled 45.17 billion lei ($9 billion/8.02 billion euro) at the end of June, as revenue fell 1.6% year-on-year to 146.2 billion lei, whereas spending rose by 13.6% to 191.43 billion lei.

Tax revenue increased by an annual 10.4%, social security contributions edged up 0.04% on the year and VAT proceeds was 15.8% lower in the first six months of 2020.

Investments totalled 16.12 billion lei in the January-June period, up by 30.8% compared to the same period of 2019.

In April, Romania's finance ministry said that the consolidated budget deficit will widen to 6.7% of GDP this year, up from original projections for a gap of 3.59%, due to additional expenses related to the coronavirus crisis.

Romania closed 2019 with a consolidated budget deficit of 4.6% of GDP, exceeding the 4.4% ceiling set by the government and the EU's 3% threshold.

The figure of the deficit is smaller than that foreseen in the program, said, on Monday evening, the Finance Minister, Florin Citu, at private TV broadcaster Realitatea Plus.

"Already in the first part of the year, in these first six months, we may have 300 million euro discounted already from this execution and we will present the execution in the coming days, I think tomorrow. And I can tell you that the budget deficit in the first half of the year represents money that remained with companies and COVID expenses (...) The idea is that the money will return to the budget in the coming months. (...) We will present tomorrow deficit figure. It's smaller than the figure we had in our program on deficit for several reasons. Half the deficit comes from the fact that we made those decisions to postpone taxes, contributions, VAT, sequestering, we lifted liens, etc." Citu explained.

A month ago, the Finance Minister said that Romania will record this year a budget deficit of 6.7 pct of the GDP, and that economic contraction will sit at year's end at 2.2 pct of the GDP.

"We have succeeded, through the measures we've taken, to have the first quarter of economic growth, so 2.4 pct of the GDP, which was, after Ireland, the highest economic increase in the European Union. The GDP at six months, we have the second quarter which is negatively affected, and here we will have a contraction of the economy in a scenario that would go towards year's end to minus 2.2 pct of the GDP for the entire year. Romania will not have a technical recession, so we will not have two negative quarters in any case. We will have the recovery of the economy in Q3, as we've said from the beginning," said Citu.



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