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The budget deficit at the end of this year could be in the immediate vicinity of 3% of GDP in terms of overestimation of VAT and social contributions, and in the event of less favorable macroeconomic developments than those taken into account in the budget construction, this level could even be exceeded, consider the representatives of the Fiscal Council.
"Given the likely extent of overestimation of VAT revenues (by about 5 billion lei) and of social contributions and income tax (by about 3.5 billion lei), partly offset by the tax revenues on non-taken banking sector assets we estimate that, in the absence of additional compensatory measures, it is likely that the deficit at the end of this year will be in the immediate vicinity of the level of the budget deficit (which we estimate under current conditions at around 4 billion lei) we consider that the end-year deficit will be 3% of GDP. We also reiterate our concern about the risk of significantly less favorable macroeconomic developments than those projected in budget construction, which would lead to additional pressure on the budget deficit in 2019, with the risk of exceeding the level of 3% of GDP without corrective measures," the source said.
Fiscal Council experts say the economic growth scenario underlying the budget construction is overly optimistic relative to similar ratings by other institutions, especially in the context of the expected slowdown in the Eurozone economy and the likelihood of an end to the expansive phase of the global economic cycle.
On the other hand, the Fiscal Council considers hard to believe acceleration of the growth rate by 3.7% in the number of employees in the competitive sector, given that the monthly data published by the official statics reveal a trend of a visible slowdown in the growth rate of the number of private sector employees from 4% in 2016 to 3.2% in 2017 and 1.7% between January and November 2018.
Fiscal Council specialists are also reserved for the evolution of VAT revenues that are projected to grow by 17% (by 10.1 billion lei or 0.54% of GDP) compared to the level of execution for 2018.
The Fiscal Council also draws attention to the extraordinary revenue from leasing 5G bands, which is estimated at 2.1 billion lei, a significantly higher level compared to the one envisaged in the initial version of the budget for the previous year (which evaluated these revenues at 1.3 billion lei).
The draft budget for 2019 is built on an economic growth of 5.5%, a budget deficit of 2.55% of GDP in cash (2.57% of ESA deficit) and an average annual inflation of 2.8%.
