January 23 (SeeNews) - Romania's government on Monday said this year's budget draft is based on projections for 5.2% economic growth and envisages a deficit of 2.99% of GDP under the European System of Accounts (ESA) standards.
Going forward, the government expects deficit to fall to 2.53%/GDP in 2019 and 2.02%/GDP in 2020, the finance ministry said in the budget draft posted on its website.
The budget is expected to be voted in parliament no later than January 25. It should then be endorsed by president Klaus Iohannis.
According to the document, GDP this year is estimated at 815.1 billion lei ($193 billion/ 181 billion euro).
Revenues are projected at 254.7 billion lei, or 31.2% of GDP, and expenditures are expected to add up to 278.8 billion lei, or 34.2% of GDP. The resulting deficit of 24.1 billion lei is equivalent to 2.96% of GDP in cash terms and 2.99% of GDP under ESA standards.
According to the Maastricht treaty signed in 1992, the ratio of the annual general government deficit relative to GDP at market prices must not exceed 3% at the end of the preceding fiscal year.
"For the 2017 budget draft we considered the following macroeconomic indicators: average annual inflation of 1.4%, an average net salary of 2,274 lei and an average exchange rate of 4.46 lei for an euro. Also, we expect the number of employees to increase by 4.3% and unemployment rate to fall to 4.3% at the end of 2017," the finance ministry stated.
In the eleven months through November, Romania's consolidated budget showed a deficit equivalent to 0.73% of the GDP projected for 2016, according to finance ministry data.
Romania's annual consumer price deflation decelerated to 0.5% in December, from 0.7% in November. In its latest inflation report issued in November, Romania's central bank BNR raised to 2.1% its 2017 inflation projection. The country ended 2015 with a deflation of 0.9%.
Romania's unemployment rate slightly decreased to 5.7% in November, down from 5.8% in October, according to data from the national statistical office (INS). Romania's workforce is estimated at about 9.0 million out of a population of some 20.1 million.
A week ago, prime minister Sorin Grindeanu gave the thumbs up on 2017 budget assuring that the forecasts calculate in the effect of recent measures taken by the government and are in line with the governing programme.
In mid-January, president Iohannis signed into law a bill doing away with health and social insurance tax on all pensions and scrapping revenue tax on pensions under 2,000 lei. At the beginning of January, Iohannis also signed into law a bill eliminating 102 fees and charges, initiated by governing Social Democrat Party (PSD). Also at the beginning of January, the government approved an emergency ordinance hiking the minimum wage by 16% to 1,450 lei starting February 1.
Romania also reduced its VAT rate from 20% to 19% as of January 1. This rate cut follows the 2016 reduction from 24% to 20%.
Romania's economy expanded by 4.3% year-on-year in the third quarter of 2016, slowing down from 6.0% annual growth in the second quarter, provisional data from the country's statistical board INS showed. In the first nine months of 2016, the economy grew by 4.8%. Romania's national output expanded by a real 3.8% in 2015, compared with a revised growth rate of 3.0% in 2014.
On Saturday, Fitch Ratings affirmed Romania's long-term foreign and local currency issuer default ratings (IDR) at 'BBB-', with stable outlooks. Fitch said that Romania's ratings are constrained by fiscal uncertainties that stem from continued pro-cyclical fiscal loosening.
At the beginning of January, the World Bank projected that Romania's economy will expand in 2017 and 2018 at 3.7% and 3.4%, respectively, according to the report published on its website.
(1 euro =4.4973 lei)