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2018 budget – official draft: Ministry of Finance counts on a 5.5% increase and an exchange rate of 4.55 lei/euro. Prime Minister Tudose has doubts

de Adrian N Ionescu , 4.12.2017

The state budget for 2018 drafted by the Ministry of Public Finance (MPF) counts on a decline in the economic growth only to 5.5% in 2018, compared to the level put forward by the National Commission for Prognosis for 2017 (6.1%), according to the draft law published by MFP.

The nominal Gross Domestic Product (GDP) is estimated at over RON 907.8 billion, with a projected average inflation of 3.1% (3.2% at the end of 2018) and a budget deficit (cash) stopped at 2.97% of GDP, and an ESA deficit of 2.96% of GDP, according to MFP document.

MFP built the budget on an average exchange rate of 4.55 lei/euro, according to analysts’ forecasts.

Prime Minister Mihai Tudose himself seems to question the level forecasted in the draft budget, saying on Thursday that it is still “under discussion”.

The number of unemployed would drop to 351,000 (451,000 people in October), and the net average monthly wage would increase to 2,614 lei, 12 lei up compared to October 2017.

Budget revenue projected for 2018 is estimated at RON 287.5 billion (31.7% of GDP).

The largest shares in the total budget revenues in 2018 corresponds to the 10.1 % contributions, followed by VAT with 6.8%, excise duty with 3.3%, salary and income tax with 2.3% of GDP”, says the MFP’s summary on the 2018 budget.

Budgetary expenditures are forecasted at RON 314.5 billion (34.6% of GDP, although Romania cannot exceed a collection rate of 28% of GDP).

Prime Minister Mihai Tudose also said, regarding this chapter, that this is just a draft and that the provision on making savings of 10% compared to this year might not be mandatory for all public institutions.

Savings will be made “where it is possible. It is not possible, for example, in the health domain,” the Prime Minister said.

Another question raised Thursday by Mihai Tudose on the MFP’s draft refers to the holiday vouchers that might be granted, though, to public servants. Prime Minister gave the example of local administrations which can make the decisions they want if they “fall within the salary framework”.

The destination of the expenditure, as currently drafted:

  • Social assistance expenditure has the highest share in GDP (10.9%), which registers “the highest increase on the reference horizon”, up to RON 98.6 billion, because of the “measures taken in the pensions area, the increase in the social allowance for pensioners and other social assistance rights” which reach in 2018 to 10.9% of GDP;
  • Staff expenditure amounts to RON 81.2 billion (8.9%), which means an increase of RON 11.6 billion compared to 2017, “in the context of the implementation of the Law on the remuneration of the personnel paid from public funds”;
  • Goods and services, RON 39.9 billion (4.4% of GDP),
  • Government debt expenditures, RON 12.1 billion (1.3%);

The Ministry of Finance promises investment expenditure of RON 38.5 billion (4.2% of GDP) in 2018, which represents an increase, at least theoretical, by RON13 billion compared to 2017, according to the official calculations.

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