Budget rectification, adopted in a hurry by the Bolojan government

Last night, in an extraordinary session, the government adopted in a hurry the draft budget rectification for 2025, a document with a major impact on the national economy and social life. Why do we say that the rectification was approved very quickly? Because the Executive almost eluded the decision-making transparency mechanism, as long as the draft emergency ordinance on the budget rectification remained transparent for a little more than 24 hours until its approval.

The Ministry of Finance argued in the Substantiation Note that the budget rectification occurs in a context in which pressures on state spending are increasing, and resources must be divided between social programs, strategic investments and international obligations. According to the calculations of the Ministry of Finance, the revenues of the general consolidated budget increase by 3.23 billion lei, while the expenditures increase by 27.81 billion, which raises the budget deficit to 24.579 billion lei, equivalent to 8.4% of GDP, a level that reflects both the government's ambition to maintain the pace of investments and social protection, and the structural vulnerabilities of the economy. The rectification brings substantial additional allocations for essential areas, especially social ones. The Ministry of Labor, Family, Youth and Social Solidarity receives 5.516 billion lei to cover expenses related to pensions, salaries and social benefits, while the Ministry of Development benefits from 2.473 billion lei for public works and local infrastructure projects. Agriculture receives 1.222 billion lei, money directed towards projects with non-reimbursable European funding, including those in the post-accession phase, and the Ministry of Energy receives 1.198 billion to support programs in the field. Other ministries also benefit from increases, such as the Ministry of Economy with 416.9 million lei, Education with 140.5 million lei, especially for projects financed through the PNRR, or even the Romanian Intelligence Service, which receives supplements to personnel and social assistance expenses.

However, the largest budget increase is recorded by the Ministry of Finance - General Actions, with 20.074 billion lei, money intended to cover mandatory expenses and commitments assumed by Romania at international level. Also in the area of institutions receiving additional funds are the Ministry of Justice, the Permanent Electoral Authority, which receives 169 million lei for the reimbursement of electoral expenses, and the National Sanitary, Veterinary and Food Safety Authority, which obtains 70 million for transfers between public administration units.

On the other hand, the rectification also comes with significant reductions, which demonstrates an attempt to balance resources. The Ministry of Investments and European Projects loses 3.246 billion lei, and the Ministry of Health has a decrease of 2.661 billion, especially from the savings identified in externally financed projects and from the PNRR, where implementation was slower. Transport loses 1.849 billion lei, the Ministry of Internal Affairs 164.8 million, and the General Secretariat of the Government 146 million. Also, the Special Telecommunications Service records a decrease of 127.6 million lei, and the Ministry of Finance loses 668.3 million lei in some chapters, despite the massive increase at the general level.

Through this rectification, the government sends a clear signal: the priorities remain social programs, strategic investments and international commitments, but at the same time, funds are adjusted in areas where savings or delays in the absorption of money have been noted.

The draft budget rectification adopted yesterday by the Government is based on coordinates that are compatible with a cash budget deficit of around 8.4% of GDP at the end of 2025, subject to some risks, according to the Fiscal Council Opinion published yesterday morning by the public institution. The members of the Fiscal Council mention that this new target must be judged in relation to a larger deficit (around 9% of GDP), which is taking shape in the absence of adjustment measures.

"Considering the results of the budget execution at 8 months, the historical developments of the revenue aggregates in the last months of the year, the dynamics of the relevant macroeconomic bases and the presumed budgetary impact of the correction package, the revised revenue target in the draft rectification can be considered, overall, as plausible. Relatively optimistic values predicted for some revenue categories are offset by cautious projections for others. (...) this rectification seems to be positive, given the initial target of 7.04% of GDP (...). Analysis of the proposed revisions for the main revenue categories of budget expenditures show an adjustment in relation to the current budget execution (especially at the level of interest, social assistance and goods and services expenditures), creating the premises for compliance with the new proposed targets. However, there are risks regarding the social assistance aggregate, (...), while a possible adoption of measures to reduce the number of positions in the central/local administration could generate savings in personnel expenses. It should be emphasized that the pressure on budget expenditures will increase in the coming years as a result of the commitments assumed by Romania to increase defense spending. Allocating a higher percentage of GDP to defense will impose additional constraints on the budget, intensifying the need to prioritize and streamline public spending in order to allow the deficit correction process to continue. Additionally, at present, allocations to education and health remain undersized, compared to the average in EU member states and the needs of Romanian society”, the Fiscal Council's Opinion states.

• Without budgetary correction measures, the share of public debt in GDP would have exceeded the 100% threshold in 2032

Regarding the package of fiscal-budgetary measures adopted by the Government by assuming responsibility in the plenary session of Parliament in July, the Fiscal Council indicates that it will have a limited positive impact on the 2025 deficit, influencing budget execution starting in September. "The effect of reducing the budget deficit will, however, be considerably greater in 2026, given the annualized impact of the increase in VAT rates, the introduction of CASS for pension incomes higher than 3,000 lei, the additional taxation of credit institutions and gambling and the additional increase in excise duties, combined with the freezing of salaries and pensions. Additionally, the annualized impact of measures to restrict spending in the field of education, to limit some increases in the public sector, to revise the calculation method of vacation allowances and to limit the expenses determined by people who benefit from health insurance will contribute to mitigating the spending trajectory. In addition, other measures included in the other packages (for example, the revision of the property tax calculation method) will support the budgetary correction in 2026”, the Opinion of the Fiscal Council states.

The cited document also shows that the other packages of measures to be implemented by the end of the year will not fundamentally modify the budget execution in 2025, which can be explained by the nature of the structural reforms, which have a visible impact in the medium and long term, as well as by the short time remaining until the end of the year, in which they can still produce effects.

However, the Fiscal Council claims that the presumed impact of these measures will lead, at the end of 2026, to a deficit of around 6.5% of GDP, which would represent a significant adjustment compared to the very high values in previous years.

"Reducing the deficit would increase the credibility of government commitments, giving Romania easier access to financing and refinancing on international markets, and would improve risk perception, contributing at lower borrowing costs. (...) If budgetary correction measures had not been adopted, in a no-policy change scenario, the share of public debt in GDP would have had an explosive evolution, with average annual increases of over 6 percentage points, reaching 83% in 2029 and exceeding the 100% threshold in 2032", the Fiscal Council's Opinion states.