July 26 (SeeNews) - Romania's consolidated budget posted a smaller-than-expected deficit of 0.5% of GDP for the first half, compared to a surplus of 0.6% of GDP a year earlier, the finance ministry said.
The ministry had projected the first-half shortfall at 1.9% of GDP, it said in a statement late on Monday.
Romania's consolidated budget deficit stood at 3.85 billion lei ($951 million/866 million euro) in January-June, compared to a 4.2 billion lei surplus in the same period last year, as revenue fell 2% on the year to 108.4 billion lei, while spending rose 5.5% to 112.2 billion lei.
Revenues from income tax increased 12.5%, excise duties climbed 7.7%, and social security contributions increased 6.3%. On the other hand, VAT proceeds were down 9.5%, reflecting a VAT cut from 24% to 20% starting January 1 and to 9% for some food items starting June 2015.
Investments rose by an annual 15% to 11 billion lei, or 1.5% of GDP, in the first six months of the year.
Commenting on the figures, ING Bank analysts said that while this year’s fiscal gap target does not appear to be in particular danger, next year’s execution might well be wider as the budget is already stretched. Moreover, MPs have come up with populist plans for hefty tax cuts and spending increases ahead of the elections to be held later this year.
For their part, Raiffeisen Bank analysts said that to a very large extent, this deficit was driven by the deficit related to EU funds.
"Despite the low level of revenues in EU inflows in the first half of the year, of 1.2 billion lei, the level of public expenses related to EU funds remained elevated, at 5.8 billion lei," Raiffeisen analysts said in a daily market report.
In January-May, the country posted a budget deficit of 0.1% of GDP.
Romania targets a consolidated budget gap of 2.95% of GDP on a cash basis in 2016, below the 3% EU ceiling. The country's consolidated budget for 2015 showed a deficit of 1.47% of GDP, below the 1.85% limit set in the fiscal strategy for 2015.
(1 euro=4.4633 lei)