Download Report on 2013 final budget execution

MINISTRY OF PUBLIC FINANCE
REPORT ON 2013 FINAL BUDGET EXECUTION
The main features of 2013 budget implementation

Continuing the fiscal consolidation process, Romania had in 2013 the lowest budget deficit
according to ESA since the country’s accession to EU;

Arrear payments amounting to approximately 3.8 billion lei in the health sector, the local
administrations and the SOEs;

Improved absorption of EU funds through secured state budget co-financing and state
treasury borrowings;

Structural reforms in the budgetary sector, including:
- Approval of GEO nr. 46/2013 on the financial crisis and the insolvency of territorialadministrative divisions;
- Improved transparency; for the first time, detailed data on the budget and public debt
was published in an accessible format on the newly created website (www.mbuget.ro);
- Start of the Project called „Improve the accountability of public sector by modernizing
the information technology system to report on financial statements of public
institutions” funded under the Operational program – Administrative Capacity
Building”;
- Prioritization of public sector investments.

Debt contracted at historically low costs, on the domestic and, in particular, on the foreign
market.
2
Contents:
I. A review of the macroeconomic situation
II. Structural Deficit and ESA Deficit
III. Fiscal and Budgetary Policy
IV. Investment expenditures in 2013
V. Government financial and non-financial assets
VI. Financing the budget deficit and the public debt
Annex nr. 1 – Execution of the general consolidated budget from January 1 to
December 31, 2013
Annex nr. 2 – The correspondence table showing the transition methodology from
cash accounting data to ESA standard-based data.
3
I. A review of the macroeconomic situation
The starting point of the 2013 budget was the macroeconomic forecast at the beginning of
2013, issued in the context of the ruling strategy of the newly established government after the
parliamentary elections, and has been relying on statistical available data on the Romanian
economy developments in 2012.
- rate of change compared to the previous year Macroeconomic
framework for the
2013 budget
GROSS DOMESTIC
PRODUCT
Private consumption
Government consumption
Gross Fixed Capital
Formation (GFCF)
EC 2012 autumn
Achievements
forecast for Romania
2013
1.6
2.2
3.5
2.3
1.6
1.9
2.1
1.3
-1.8
3.5
2.1
-3.3
The international context and, in particular, the perspectives within the European Union and
the main member states holding a share of Romania’s foreign trade, which have been taken into
account for the substantiation of forecasts are those which were published in the 2012 Autumn
Forecast of the European Commission. At the time of preparing the 2013 budget the economic
situation across the EU and the Eurozone was expected to recover and get out of recession, with
the economic growth becoming positive.
However, economic developments remained below the expectations. In 2013, Real GDP
growth was 0.1% across EU but it trended down in the Eurozone by 0.4%.
Economic growth and EU imports in 2013
- rate of change, compared to the previous year GDP Growth
2012 Autumn Forecast Achievements
EU - 27
0.4
0.1
Eurozone
0.1
-0.4
Germany
0.8
0.4
Imports of goods and services
2012 Autumn Forecast Achievements
2.4
0.4
2.1
0.2
5.1
0.9
A significant fact is that Romania was the second EU member state with a GDP increase
of 3.5 percent in 2013, was the third year of growth in a row (2.3% in 2011 and 0.6% in 2012),
which consolidated the trend of recovery from the economic and financial crisis which badly
affected Romania in 2009 and 2010. The increase in 2013 came, in principal, from the positive
contribution of the net export, while the domestic demand dropped as a consequence of the
lowered gross fixed capital formation.
4
GDP Quarterly Evolution
2013
Quarter I
Quarter II
Quarter III
Quarter IV
- %, compared to the previous yearEU - 27
Eurozone
0.0
-0.2
0.4
0.3
0.3
0.1
0.4
0.2
Romania
0.6
0.8
1.6
1.6
The net export was the main driver of growth, with a contribution of 4.4 percent to the real
GDP growth, on the back of the increased foreign demand which triggered an increase in the
exports of goods and services, in real terms, by 13.5%, with the imports of goods and services
increasing by 2.4 percent.
The contribution of final consumption was poor, only 0.6 percent, due to the households
consumption which accelerated in H2 2013, against the background of a lower inflation and high
crops, which encouraged the private farmers’ market and self-consumption, a important
component of households consumption in Romania.
Investments remained far below expectations, with the gross fixed capital formation
trending down by 3.3%, after signs of recovery in 2011and 2012. This was caused by the high
investor uncertainty, in particular foreign investors, and a low contribution of government
investments.
Contributions of components to real GDP growth
-%2012
2013
Macroeconomic
Macroeconomic
framework of
Achievements
framework of
Achievements
the 2013 budget
the 2013 budget
GROSS DOMESTIC
PRODUCT
Domestic demand
- Final consumption
-- Private consumption
expenditures
-- Government
consumption
expenditures
- Gross Capital
Formation
-- Gross Fixed
Capital Formation
-- Changes in
inventories
Net export
- Exports of goods and
services
- Imports of goods and
services
0.2
0.6
1.6
3.5
0.9
0.1
1.1
1.2
2.5
1.7
-0.9
0.6
0.5
1.0
1.5
0.8
-0.4
0.2
0.2
-0.2
0.8
-0.1
0.8
-1.5
1.6
1.0
1.0
-0.9
-0.8
-1.1
-0.2
-0.6
-0.7
-0.5
-0.9
4.4
-0.7
-0.6
0.4
5.5
0.0
-0.1
1.3
1.1
Note: 2012 achievements are semi-final, while the 2013 achievements are provisional.
5
On the domestic supply side, industry and agriculture were the main drivers of economic
growth. The gross value added in the industrial sector contributed to the real GDP growth by 2.3
percent, with the farming sector supporting the 2013 economic growth by 1.1 percent.
Contribution of branches to the real GDP growth
-%-
Industry
Agriculture, forestry,
fishery
Constructions
Total services
Net taxes per product
GROSS DOMESTIC
PRODUCT
2012
2013
Macroeconomic
Macroeconomic
framework of
Achievements
framework of
Achievements
the 2012 budget
the 2013 budget
0.1
-0.3
0.2
2.3
-1.5
-1.6
0.4
1.1
0.2
0.8
0.6
0.2
2.0
0.3
0.3
0.5
0.2
0.0
0.0
0.1
0.2
0.6
1.6
3.5
Characteristic to the GDP growth in 2013 was the fact that it occurred due to a positive
contribution of farming activities which increased compared to 2012, when they had been
seriously affected by the bad weather.
Gross value added in Agriculture
Gross value added in non-farming activities
GROSS DOMESTIC PRODUCT
- rate of change, compared to the previous year 2012
2013
-24.6
23.4
2.3
2.5
0.6
3.5
Note: Net taxes are included in the non-farming activities.
The annual inflation rate reached its historical minimum since 1990 at the end of 2013, i.e. 1.55%,
which is by 3.4 percentage points below the end of 2012. As annual average, the inflation was by
0.65 percentage points above the previous year’s average, i.e. 3.98%.
The considerable disinflation process came from a persisting demand gap and pressures from the
agro-food prices. The lower VAT rate for some bakery products and the relatively stable
exchange rate added to the consumer price decrease.
Administered prices trended opposite, with important hikes seen in water sewerage, sanitation
(12.07%); natural gas (9.25%); and electricity (7.90%), compared to end of 2012.
The group of food products saw a deflation (1.81 percent) compared to the end of 2012, with the
highest price increase seen in the group of non-food products, i.e. 3.62%, which is above the
average inflation rate by 2.07 percentage points.
The positive impact on the consumer prices was made possible also due to an appreciation of the
domestic currency by 0.8 percentage points compared to the rate in 2012, which enabled an
additional positive contribution of imported goods prices and of goods and services linked to the
European currency to the dynamics of inflation.
6
II. Structural deficit and ESA 95 deficit
II.1 ESA 95 Deficit
In 2013, the deficit of the general government was calculated based on the final data
submitted by the public institutions and the provisional data of the state-owned companies
included in the general government, with the resulting deficit (semi-final data) according to
ESA 95 methodology below 2.3% of GDP, therefore below the target set at 2.6% of GDP.
Compared to 2012, the 2013 deficit calculated according to ESA 95 methodology went
down by 0.7 pp, from 3% of GDP in 2012 to 2.3% of GDP in 2013, which accounts for a decrease
by 23%.
Deficit of the general government according to ESA 95
2007
Mil. lei
Deficit %
of GDP
2008
2009
2010
2011
2012
2013*)
-12,115.7 -29,242.1 -45,248.8 -35,551.7 -30,901.2 -17,548.0 -14,276.4
-2.9
-5.7
-9.0
-6.8
-5.5
-3.0
-2.3
II.2 Structural deficit
Romania’s structural deficit dropped from 2.5% of GDP in 2012 to 1.8% in 2013, in line with
the decrease of the general government’s deficit. The output-gap remained negative, trending
down by 1.4 percentage points compared to 2012, which pushed down the cyclical component of
the budget deficit by 0.5 percentage points.
While the structural deficit1is being revised regularly, including for the past years’ levels, one
can notice that Romania saw the largest cuts of this deficit after the European rules were
introduced in this respect.
Starting with 2011 – the year in which the regulations requiring the annual cut of structural
deficit by minimum 0.5 percentage points became effective –Romania’s deficit went down by 4.3
percentage points, namely from 6.1% of GDP in 2010 to 1.8% of GDP in 2013.
In average, the annual cut was 1.4 percentage points. As a consequence, Romania,
alongside Denmark, was the only country in the non-Eurozone which joined the MTO monitoring
mechanism, like the Eurozone states.
Structural deficit
-% of GDP -
2007
Structural deficit
-4.9
2008
-8.3
2009
2010
-9.6
-6.1
2011
-3.8
2012*)
2013*)
-2.5
-1.8
1
Macroeconomic indicator determined through an econometric method.
7
*) estimates
The fiscal consolidation policy in Romania has been supported through financing
agreements with the EU and the IMF, and has managed to correct the budgetary imbalance (in
ESA terms) by over 6 percentage points in only three years and to exit, as of 2013, the excessive
deficit procedure of the European Union (the ESA deficit of 2012 was below the limit of 3% of the
GDP).
At the same time, medium term budgetary planning observes the new rule related to budget
deficit provided by the Treaty on Stability, Coordination and Governance in the Economic and
Monetary Union, and has scheduled to achieve the budget objective on medium term (1% of the
GDP in structural terms) in 2015.
Structural deficit and ESA deficit in 2008 - 2013
0.0%
- 2.0%
2007
2008
2009
2010
2011
2012
2013
- 4.0%
% în PI B
- 6.0%
- 8.0%
- 10.0%
ESA Deficit
Structural Deficit
III. Fiscal and budgetary policy
III.1 Achievement of budgetary policy objectives in 2013
The situation of budgetary policy objectives in 2013 and how they are achieved is as follows:
1. Secure the resources of
the
sustainable
economic
development by increasing the
general government expenditures
by 15.4 billion lei.
2. Continue the fiscal
consolidation process.
Achievements
Achieved. Even after the second negative revision, with
collections below expectations, the general government
expenditures still went up by 13.4 billion lei in 2013
compared to 2012.
The wages of the public sector increased by 15%, the
pensions increased by 4%, the minimum wage by 15%, and
the minimum guaranteed income by 8%.
Achieved. According to the European accrual methodology,
the budget deficit went down in 2013 to 2.3% of GDP from
3.0% of GDP (final number) in 2012. According to the cash
methodology, the budget deficit was 2.5% of GDP, which
confirms that the deficit target of 2.5% of GDP is reached at
the end of the year.
8
3. Strengthen the budgetary
discipline through cutting the
waste of the HQ’s expenditures
and through the payment of
arrears of the health sector, the
transport infrastructure and the
local administration.
4. Public investment reform
through a substantial increase of
co-financing funds for EU-funded
projects and finance, as a priority
in 2013, the investments with a
high execution rate and which
can be completed until 2014.
5. Improve
multi-annual
budget planning in 2014-2016
Achieved. The arrears of the health sector paid in 2013
amounted to 2.6 billion lei, and the local government’s
arrears decreased by RON 643.93 million from January 2013
through December 2013, due to the Treasury loans aimed at
the payment of arrears (in amount of RON 800 million) and
the adoption of the local authorities’ insolvency legislation.
Achieved. The co-financing funds increased by 2.2 billion lei,
i.e. by 12.7% compared to 2012, from 2.9% of GDP in 2012
to 3.1% of GDP in 2013. In addition, over 8.8 billion lei were
allocated in Treasury loans in 2013 to pay the beneficiaries
of projects financed with European funds awaiting for the EU
reimbursements.
Ongoing. Progress has been made in prioritizing public
investments, the performance-based budgeting in certain
sectors, and consolidation of the budgets of SOEs which
have been included in the general government (according to
ESA). However, a multi-annual budget could not be
introduced as the Constitution was not revised in due time to
make it possible.
6. Transparency in using Achieved. For the first time in Romania, detailed budget and
public funds and best practices in debt data was published in an user-friendly format on the
budget reporting.
new website (www.mbuget.ro), bringing an unprecedented
level of transparency in the budget public debates. GEO nr.
88/2013 was approved, introducing various fiscal and
budgetary measures needed to meet the commitments
agreed with the international institutions, and revising and
supplementing several pieces of legislation.
7. Adequate public debt
Achieved. In 2013, Romania contracted loans at historically
management.
minimum rates, on the domestic and in particular on the
foreign market (for instance, 4.15% for the 7-year Eurobond
issuance). Because of these developments, the second
budget revision brought over RON 600 million in savings
from interest attached to the government public debt.
The measures adopted by the Government to enable the achievement of the above objectives
included:
-
Public sector wages were restored in 2013;
-
Pensions increased;
-
Minimum wage and minimum guaranteed income increased;
-
Arrears (debts over 90 days) were paid in amount of over 2.6 billion lei in respect of
pharmaceuticals;
-
Around 1 billion lei in local governments’ arrears were paid;
-
EU funds absorption increased substantially, due to the increased co-financing
expenditure and the treasury loans for advance payments.
While the achievement of these objectives required a heightened budgetary effort, against
the background of achievements below expectations of the fiscal revenues, we managed to
observe the budget deficit targets in a way that the fiscal consolidation process was not impaired.
In 2013, Romania exited the excessive deficit procedure and continued to apply a policy focused
9
on a prudent management of public expenditures and a significant improvement of the public debt
management.
III.2 Evaluation of budgetary targets and indicators
For the purpose of drafting the annual budget laws, a general government deficit of
2.1% of GDP, cash-based, was taken into account for 2013, similar to the level assumed in the
approved fiscal and budgetary strategy. As a derogation from the provisions of Law nr. 4/2013,
approving the ceilings to the indicators specified in the fiscal and budgetary framework, the
budget deficit was increased at the time of the first budget revision to 2.3% of the gross domestic
product, and further to 2.5% of GDP after the second budget revision, as a consequence of the
impact of the national infrastructure development plan and the additional funds allocated to cofinance the EU-funded projects.
The budget balance as a breakdown by the main component budgets in 2013 is
presented below:
Fiscal and
budgetary
strategy
-2.1
-2.1
Initial
Budget
Balance of the general consolidated budget (% of GDP)
Primary balance of the general consolidated budget (% of
GDP)
Balance of the general consolidated budget (million lei)
Balance of the state budget (million lei)
Updated
Plan
2013
-2.5
Achievements
2013
-2.5
-0.3
-0.3
-0.8
-0.8
-13,394.0
-18,176.8
-13,394.0
-18,176.8
-15,900.0
-20,665.9
-15,794.0
-19,429.8
186.7
186.7
254.7
200.6
0.0
0.0
0.0
-21.3
Balance of the unemployment fund (million lei)
13.0
13.0
31.4
-8.8
Balance of the self-financed institutions’ budget
(million lei)
593.8
593.8
593.4
197.1
Balance of the social security budget (million lei)
Balance of the health insurance fund
(million lei)
The general government deficit in 2013 was 15.8 billion lei, i.e. 2.5% of GDP, in
observance of the target set at the time of the latest budget revision, still by 0.4 pp above the level
provisioned in the initial budget preparation and assumed afterwards in the fiscal and budgetary
strategy.
Due to the increase of the general government deficit, the primary balance of the general
consolidated budget went up from -0.3% of GDP as set in the fiscal and budgetary strategy, to 0.8% of GDP.
By derogation from the provisions of the Law nr. 4/2013, in which the ceilings for various
indicators specified in the fiscal and budgetary framework were approved, the first budget
10
revision pushed up the nominal amount of total expenditures and staff expenditures in the
general consolidated budget, the state budget, the centralized budget of territorial administrative
divisions and other components of the 2013 general consolidated budget.
The second budget revision decreased the total expenditures of the state budget, the
territorial administrative divisions, the national single health insurance fund and other component
budgets of the general government in 2013.
In addition, the staff expenditures increased for the central governments and the territorial
administrative divisions and decreased for the national single health insurance fund and the fully
or partially self-funded institutions.
Therefore, in assessing whether or not targets set in the initial budget law and the fiscal
and budgetary strategy were reached, it is necessary to take into account the fact that initial
assumptions were substantially revised, in particular macroeconomic developments and changes
in the amount and composition of expenditures, and therefore, corrections were needed in
respect of the initial estimates of the two budget revisions but within the limits of the strategic
objective which is to continue the fiscal consolidation process.
III.3 Budget execution in 2013
III.3.1 Impact of budget revisions
The 2013 state budget, approved in the 2013 State Budget Law nr. 5/2013, was prepared
in the circumstances of the then-foreseen foreign developments, by taking into account a
conservatively projected increase of the gross domestic product of 1.6% for this year.
The budget revenues and expenditures were projected based on the macroeconomic
indicators estimated at the time of the 2013 draft budget law and on the fiscal regulations
applicable in 2013.
The estimation of budgetary indicators took into account the achievement of an initial
budget deficit target of 2.1% of GDP in cash terms, and 2.4% of GDP according to ESA 95.
In order to encourage the economic growth, a set of measures were provisioned, including:
 The increase of the population’s disposable income through: a 4% pension indexation; the
payment of the 7% public sector wage increase; the increase by RON 750 of the minimum
wage from February 1, 2013 and by RON 800 as of June 1, 2013;
 The improvement of the investment efficiency by prioritizing the EU-funded projects;
 Job creation: a net increase of 55 thousand jobs according to the 2013 budget draft;
 Payment of arrears: this releases the resources of the private sector and restores the
confidence into the market mechanisms, helping the increase of cash in the economy;
 The continued allocation of state aids to allow investments in the economy.
The first budget revision was passed in August 2013 by means of the Government
Ordinance nr. 17/2013 and focused on the following elements:
11
 In the first year half, the performance of the economic activity was above the initial
estimates, with a GDP increase of 2.2% in Q1 compared to 2012 Q1.
 The outcomes of budget execution in the first six months of 2013: the execution of the
general consolidated budget closed on a deficit of -6.63 billion lei, accounting for 1.06%
of GDP, compared to -6.79 billion lei, namely 1.16% of GDP at the same date of the
previous year.
 The agreement with IMF was successfully finalized with the completion of reviews 7
and 8, reflecting the improvement of the macroeconomic situation in Romania and the
progress of structural reforms, Romania having achieved all five prior actions included in
the Stand-by Agreement.
The economic growth occurred more on the back of foreign demand, as the domestic
demand remained at the level of 2012 therefore it did not favor the dynamics of budget revenues.
Consequently, the estimates for the main budget revenues categories were adjusted as follows:
Negative impact:
- profit tax: RON -852.0 million ( -0.13% of GDP);
- other taxes on profits, income and capital income for legal persons: RON -214.0 million;
- value-added tax: RON -786.3 million (-0.12% of GDP);
- excise duties: RON -460.0 million (-0.07% of GDP);
- EU reimbursements (in respect of incurred payments): RON -40.0 million.
Positive impact:
- charges on the use of goods, permits for the use of goods and licensing activities: RON
+413.0 million (0.06% of GDP);
- other taxes and fiscal charges: RON +30.0 million.
The impact on the main expenditure categories of the central government is as follows:
 Staff expenditures RON +61.1 million;
 Expenditures with goods and services RON +33.6 million;
 Interest expenditures RON -10.1 million;
 Subsidies RON +97.8 million;
 Transfers among units of the public administration RON -388.0 million (-0.06% of GDP);
 Other transfers RON -289.1 million (-0.04% of GDP);
 Projects funded from post-accession grants RON -857.2 million (-0.13% of GDP);
12
 Social assistance expenditures RON -190.6 million;
 Other expenditures RON -28.4 million;
 Reserve funds RON +76.6 million;
 Expenditures allocated to programs funded from reimbursable funds RON +234.9 million;
 Capital expenditures RON +555.9 million.
In addition, both revenues and expenditures of the single national health insurance
fund were increased with the collections in clawback tax amounting to RON 569.0 million.
After the Government Ordinance nr. 17/2013 was passed, total revenues of the general
consolidated budget went down by RON 2,284.1 million, with the general government
expenditures consolidating by RON 978.4 million.
As a result, the general government’s cash deficit raised from RON 13,394.1 million as
initially estimated (i.e. 2.1% of GDP) to RON 14,700.0 million (i.e. 2.3% of GDP), with the ESA95
deficit remaining at 2.4% of GDP.
The second budget revision in 2013 approved in the Government Emergency Ordinance
nr. 99/2013 settled on:

the outcomes of the budget execution in the first 9 months of the year;

the improved EU funds absorption rate, which pushes up the budget deficit due to the an
increase of the national co-financing;

the performance of the main macroeconomic indicators;

the need to secure the funds required by some budget holders to continue operate until
the end of the year;

the need to secure the funds required by the territorial administrative divisions to continue
operate until the end of the year;

the need to link budget planning to the expected performance of the macroeconomic
indicators and the budget execution in the first nine months of the year;

the reduced funding costs, due to an improvement of macroeconomic indicators, having a
substantial impact on the sharp decline of interest expenditures;

the action of sustaining the aggregate demand of the economy, through preserving the
expenditure ceiling due to a non-achievement of estimated revenues, which pushed up
the budget deficit;

the continuation of the fiscal consolidation process, by cutting the ESA deficit from 3% of
GDP in 2012 to around 2.6% in 2013, preserving the deficit adjustment medium-term
objective set in the Treaty on Stability, Coordination and Governance within the Economic
and Monetary Union (Fiscal Treaty);

A new preventive stand-by agreement concluded with the IMF, approved by the IMF
Board at the end of September this year, which requires the continuation of the fiscal
consolidation process and the structural reforms commenced under the previous
program, to stimulate growth and secure macroeconomic stability.
The main positive impact on the revenue side of the general consolidated budget came
from the charges on the use of goods, which went up by RON +92.4 million, with the main
negative corrections on the profit tax (RON 64.8 million); the income tax (RON 205.9 million);
13
the value-added tax (RON 365 million); excise duties (RON 648.1million); other taxes and
general fees on goods and services (RON 124.0 million); the tax on foreign trade and
international transactions (RON 150.0 million) and non-fiscal revenues (RON 1,133.0 million).
The impact on the main categories of expenditures of the state budget was as
follows:









Staff expenditures RON +242.2 million;
Expenditures with goods and services RON -20.8 million;
Interest expenditures RON -669.3 million;
Subsidies RON -103.2 million;
Transfers among units of the public administration RON -204.3 million;
Other transfers RON -473.2 million;
Social assistance expenditures: RON -309.8 million;
Reserve funds RON +283.7 million;
Capital expenditures RON -76.3 million.
In addition, the budget of the national single health insurance funds was cut by RON -88.2
million on both revenues and expenditures sides.
After the GEO 99/2013 on 2013 budget revision was adopted, the revenues of the general
consolidated budget decreased by RON 3,710.9 million, with the expenditures of the general
consolidated budget going down by RON 2,510.9 million.
As a consequence, the general government cash deficit went up from RON 14,700.0
million as estimated at the time of the first budget revision, i.e. 2.3% of GDP, to RON 15,900.0
million, i.e. 2.5% of GDP. The budget deficit increased by RON 1,200.0 million, the amount
allocated to cover the co-payments on projects funded from post-accession foreign grants.
III.3.2 Budget execution
In accordance with the final data, the execution of the general consolidated budget from
January 1 through December 31 closed on a cash deficit of RON 15.8 billion, accounting
for 2.5% of GDP, compared to a projected annual deficit of RON 15.9 billion.
The cash deficit of the 2013 general consolidated budget remained, as share to GDP,
at the level of the previous year.
Cash budget deficit
2012
mil. lei
Deficit
% of
GDP
Diff. 2013
vs 2012
2013
14,773.9
15,794.0
1,020.1
2.5
2.5
0.0
14
III.3.2.1 Revenues of the general consolidated budget
Revenues of the general consolidated budget in 2013 amounted to a total of RON 200.3
billion, accounting for 31.9% of GDP with a rate of achievement of 97.5% compared to annual
estimates.
Taking into account the rate of achievement of the annual collection plan, the following
performance was seen for the main budget revenues: profit tax 101.1%, income tax 99.6%;
value-added tax 98.1%, excise duties 100.8%, insurance contributions 100.4% and nonfiscal revenues 99%.
A weaker performance was seen in the case of EU reimbursements in respect of
incurred payments, with a rate of achievement of 778%.
Budget collections were influenced by both economic developments and the adopted
fiscal policy decisions, such as the increase of the minimum wage, the increase of public sector
wages, of the pension point and the contribution rate to private pension funds as well as the
change in the excise duty rates.
The structure of budget revenues
2012
Profit tax
Tax on wages and income
4,4%
6,3% 5,6%
VAT
10,9%
9,5%
Excise duties
26,2%
26,7%
10,5%
Insurance
contributions
Non-fiscal revenues
EU reimbursements and
donations
Other revenues
15
In terms of main tax shares in total revenues, an increase was seen for the profit tax, wage tax,
capital income tax by 0.4pp; insurance contributions by 0.5 pp; property taxes by 0.1 pp; charges for
the use of goods by 0.5 pp; and EU reimbursements in respect of incurred payments and advance
payments by 0.5 percentage points.
The VAT decreased by 0.3pp, with other taxes and charges on goods and services
decreasing by 0.3 pp and non-fiscal revenues by 0.9 pp.
Compared to the previous year, the revenues of the general consolidated budget in 2013
saw a nominal increase of 3.7%, with the share to GDP dropping by 1 pp from 32.9% in 2012 to
31.9% in 2013.
Non-fiscal revenues increased in nominal terms by 4.4% compared to the previous year
but dropped as share to GDP by 0.5pp, from 19.4% of GDP in 2012 to 18.9% of GDP in 2013.
Collections from the profit tax went up by 0.7% on the back of collections from economic
agents which increased by 3.7%, with collections from commercial banks dropping by 85.1%.
The lower collections in profit tax from the commercial banks were influenced by the
negative financial result at December 31, 2012 in the Romanian banking system as a
consequence of a substantial increase in the amount of provisions in respect of the credit risk,
due to a depreciation of the financial assets quality (in particular exposures to non-financial
companies) and collateral re-evaluation2.
Collections from income tax increased by 8.5% due to the number of employees higher by
1.9%3 and the gross average wage income higher by 5.2%4. Other positive influence on the
income tax collections came from the increase in the pension point from RON 732.8 to RON
762.15, the increase of the gross minimum wage and the restoration of public sector wages.
VAT collections raised slightly by 2.6%, due to a negative influence of collections from
imported goods which dropped by 8.6%, with collections from domestic operations raising by
5.5%.
The performance of VAT collections reflected the increase of retail turnover, except for cars
and motorbikes, by 0.5%6, the decrease of imports outside the Community by 7.7%7 and some
fiscal policy measures as well as the VAT rate cut from 24% to 9% for certain bakery products.
Collections from excise duties went up by 4.2% due to the increase of the excise duties
rate for diesel oil, cigarettes, alcohol, the implementation of new excise duties for some luxury
goods and the increase of the exchange rate used to calculate the excise duties, with the
negative influence generated by the decrease of car fuels retail turnover by 3.6%8.
NBR – 2013 Financial Stability Report
December 2011 – November 2012/December 2012 – November 2013
4
December 2011 - November 2012/December 2012 – November 2013
5
Art.II, GEO nr.1/2013
6
Monthly Statistic Bulletin nr.12/2013
7
Foreign Trade Statistic Bulletin nr.12/2013
2
3
8
Monthly Statistic Bulletin nr.12/2013
16
Collections from other taxes and charges on goods and services in 2013 dropped by
26.9% as a consequence of a 41.3% drop in the quarterly contribution for financing some
expenditures in the health sector.
An important increase was seen in the state budget after the implementation, in 2013, of
the tax on additional income from gas price deregulation (RON 243.1million), the tax on natural
gas exploitation (RON 66.8 million) and the tax on monopoly in the electricity and natural gas
sector (RON 103.4 million).
Collections from the charges for the use of goods, permits for the use of goods and
licensing activities, went up by 32.2% compared to the previous year, mainly due to the
collection of licensing fees for the use of radio frequencies.
Collections from insurance contributions increased by 5.7%, due to the higher number of
employees, the increase of the gross average wage and of the minimum wage. These suffered a
negative influence from the obligation to return the health insurance to the retired9 and the
increase, in 2013, of the contribution rate to privately managed pension funds by 0.5 percentage
points, from 3.5% to 4%10.
The funds reimbursed by EU in respect of incurred payments amounted to RON 9.2
billion, showing an increase by 15% and accounted for 1.5% of GDP.
It is important to add that the funds reimbursed by the European Union and included in the
general consolidated budget are only those related to the projects in which the beneficiaries are
public institutions, excluding the projects of the private sector beneficiaries, and these were
adjusted, in line with the EUROSTAT rules, according to the extent to which they were used, in
order not to avoid the impact on the general consolidated budget.
III.3.2.2 Expenditures of the general government
Expenditures of the general government amounted, in 2013, to a total of RON 216.2
billion, which accounts for 34.4% of GDP and an achievement rate of 96% of the estimates.
Considering the extent to which the annual plan was achieved, the performance of the
main budget expenditure categories was as follows: Staff expenditures 100.1%; Expenditures
with goods and services 96.7%; Interest expenditures 101.8%; subsidies 99%; Social
assistance expenditures 99.6%; expenditures related to the reimbursable financing
programs 105.7%.
9
GEO nr. 17/2012 on measures to return several health contributions
10
Law nr. 6/2013, 2013 Social Security Budget Law
17
2012
Staff expenditures
Goods and services
9,3%
7,8%
Interest
19,6%
Subsidies
16,6%
Projects funded from non-reimbursable foreign funds
32,2%
Social assistance
6,4%
5,2%
Capital expenditures
2,9%
Other expenditures
The economic structure of expenditures revealed and increase of the staff expenditure
share by 0.8 pp, an increase of goods and services by 1.8 pp and the projects funded from nonreimbursable foreign funds by 0.2 pp.
Other decreases were seen in subsidies expenditures (by 0.5 pp); interest expenditures
(by 0.2 pp); expenditures for reimbursable financing programs (by 0.4 pp); and social
assistance expenditures (by 0.6 pp).
The expenditures of the general government increased in nominal terms, compared to the
previous year, by 4 %, still they dropped as share to GDP by 1 pp, from 35.4 % in 2012 to 34.4%
in 2013.
Subsidies expenditures went down by 15.8% in 2013 compared to the previous year, as well
as the expenditures for reimbursable financing programs which dropped by 43.6%.
Staff expenditures of the general government went up in 2013 by 13.3% compared to
the same interval of the previous year, due to the impact of public sector wage restoration and
various wage rights granted according to court decisions.
In 2013, bonus restrictions for the public sector remained in force.
Expenditures with goods and services increased, in nominal terms, by 11.9%
compared to the previous year, and their share to GDP went up by 0.2 pp. Expenditures with
goods and services went up after the implementation of Law nr. 72/2013 which implemented the
EU late payments directive 7/2011 in the Romanian legislation, and after the payment of arrears
by local governments and hospitals.
Interest expenditures increased by 0.4% compared to the previous year, but they
dropped as share to GDP by 0.1 pp compared to 2012.
18
Social assistance expenditures increased in nominal terms by 2% compared to the
previous year, but they dropped as share to GDP by 0.5 percentage points, from 11.4% in 2012
to 10.9% in 2013.
In 2013, some social assistance benefits increased as follows:
- the social benefit according to the Law 416/2011 on the minimum guaranteed income
was increased by 8.,5% as of July 1, 2013;
- family allowances according to the Law 277/2010 were increased by 30%;
- the pension point went up by 4%.
While the above measures required a higher budgetary effort, we managed, however, by
targeting most vulnerable groups and by identifying the families and individuals in real need, to
reduce the social assistance expenditures as share to GDP, compared to 2012.
Investment expenditures, which include capital expenditures, as well as the
expenditures in respect of development programs funded from both domestic and foreign sources
amounted in 2013 to RON 31.6 billion, i.e. 5.1% of GDP.
Performance of the main sectors financed by the general government
,
Achievements
2012
mil.lei
GDP
TOTAL EXPENDITURES
Public authorities and foreign actions
Public debt and loan transactions
Defense
% of GDP
Achievements
2013
mil.lei
586,750
628,581
207,922.1
35.4 216,168.3
% of GDP
Variation 2013
vs 2012
mil.lei
34.4
8,246.1
4.0%
15,279.0
2.6
15,852.0
2.5
573.0
3.8%
10,757.3
1.8
10,666.9
1.7
-90.4
-0.8%
4,159.7
0.7
4,968.4
0.8
808.7
19.4%
Public order and national security
13,855.9
2.4
14,270.4
2.3
414.5
3.0%
Education
17,777.4
3.0
18,920.8
3.0
1,143.4
6.4%
Health
Culture, recreation and religion
22,183.8
6,259.6
3.8
1.1
27,427.2
5,804.6
4.4
0.9
5,243.3
-455.0
23.6%
-7.3%
Insurance and social security
71,282.2
12.1
72,399.4
11.5
1,117.1
1.6%
Husing, services and public development6,477.2
1.1
7,310.8
1.2
833.6
12.9%
Environment protection
4,504.4
0.8
3,839.1
0.6
-665.4
-14.8%
Fuels and power
1,816.8
Agriculture, forestry, fishery and hunting
6,540.9
0.3
1,713.0
0.3
-103.8
-5.7%
1.1
5,436.6
0.9
-1,104.3
-16.9%
Transports
20,183.9
3.4
21,596.2
3.4
1,412.4
7.0%
6,844.0
1.2
5,962.9
0.9
-881.1
-12.9%
Other budgetary sectors (other general
services, communications etc.)
19
III.3.3 Arrears of the central and local governments
As far as legislation is concerned, a number of pieces of legislation was adopted/revised
which sustain the payments of arrears of the state-owned enterprises and local or central public
authorities, including:
 Government Emergency Ordinance nr.41/2013 on several financial measures, which
approved, as a derogation from the provisions of art. 30 (2) of the Public Finance Law 500/2002,
the allocation of funds from the Government’s budget reserve spending included in the 2013 state
budget, to the Ministry of Health, for the payment of hospital arrears included in the MoH network
and those subordinated to the local public administration authorities.
 Emergency Ordinance no. 3/2013 on measures to decrease certain arrears in the
economy, other financial measures, as well as on the amendment of several pieces of legislations,
which provides that the budget authorities of the local budgets of the administrative-territorial
divisions/subdivisions and of the locally subordinated public institutions that run arrears on January
31, 2013 are bound to reduce the amount of those arrears by at least 85% by March 31, 2013;
 Government Emergency Ordinance nr. 46/2013 on the financial crisis and the insolvency
of territorial-administrative divisions, by which the central authorities will provide a stricter control of
the total expenditures of the local authorities;
 Law nr. 72/2013, by which the provisions of the EU late payments directive 7/2011 were
implemented in the national legislation;
 Fiscal Responsibility Law nr. 69/2010, revised by Law nr. 377/2013, in accordance with
the EU fiscal governance provisions to integrate structural fiscal targets and corrective measures in
case of deviations;
 Government Emergency Ordinance nr. 12/2013 introducing several financial and fiscal
measures and the deferment of some deadlines, which created the possibility for the county
councils to allocate funds, from the 20% allocation, the shared income tax of 18.5% and the
transfers from VAT aimed at balancing local budgets, to territorial administrative divisions for
clearance of arrears;
 Government Emergency Ordinances nr.17/2013 and nr.99/2013 on the 2013 state budget
revision, in which it is stipulated that the transfers from VAT aimed at balancing the local budgets of
communes, cities, municipalities and counties in 2013 will be increased by RON 281.9 million,
distributed to the counties and the Bucharest municipality, for the purpose of paying the outstanding
payments recorded in the accounting books of the territorial administrative divisions, including the
institutions totally or partially financed by the local budget, the public hospitals and the network of
20
local public administration authorities on July 31 2013 and November 29 2013, respectively, to the
suppliers of goods, services and works or to the state budget, the social security budget or the
special fund budgets.
The impact of this legal framework is currently assessed as positive, since after the massive
arrear payments the arrears have not increased anymore.
In order to consolidate the public finance management, the Government continued the
implementation of reforms aimed at improving commitment control and fiscal reporting
arrangements, preventing arrears and a better management of fiscal risks. To this end, the
situations of arrears of territorial administrative divisions have been published monthly, as of the
end of September 2013. Progress has been made in implementing the commitment control systems
by the formulation of standard definitions for commitments, and consideration is being given to
extending the systems to all entities.
ARREARS
- million State budget and
self-financed
Local budgets
Social insurance
budget
TOTAL
2012
2013
2012
2013
2012
2013
2012
2013
27.72
19.95
840.18
196.25
0.00
0.00
867.90
216.20
The arrears of the main general government component budgets at the end of 2013
amounted to RON 216.2 millions (0.03% of GDP) by RON 651.7 millions below the level recorded
at the end of 2012, which means a 75.1% cut.
The highest cut was seen in the local administrations which saw their arrears going down by
76.6%, from RON 840.2 millions in December 2012 to RON 196.3 millions in December 2013. The
central government arrears at the end of 2013 went down by 28%, from RON 27.7 millions in
December 2013 to RON 20 millions in December 2012.
Arrears of the central and local governments
21
In addition, structural reforms were implemented on public enterprises, including:
 Significant progress was made in 2013 with the implementation of the privatization
agenda::
- a 15% stake of the “Transgaz” Natural Gas Transport Company was sold –
amount collected: around 72 million Euros;
- a 15% “Romgaz” Natural Gas Company was sold – amount collected: around
390 million Euros. GDRs were issued for the first time under this offer, along
with a public offer on the Bucharest Stock Exchange.
- A
share
package
issued
through
a
10%
capital
increase
10%
in
“Nuclearelectrica” S.A. National Company was sold – amount collected: around
70 million Euros.
 Financial performance of public enterprises was improved by reducing the
operational arrears and outstanding payments of these enterprises. These actions
involved:
- Restructuring of some SOEs (or liquidation, when required): two state-owned
companies were put under insolvency procedure to facilitate the reorganization and
improvement of operational efficiency;
- A Memorandum on government shareholding and the supervision of the government,
aimed at improving the management of the national portfolio of the SOEs was
introduced. This clarifies the attributions of the line ministries and MoPF for the
corporate governance, financial reporting, accountability and transparency, monitoring
and assessment of the SOEs management. In addition, the document promotes best
practices, including the adoption of IFRS;
22
- A SOEs corporate governance law was passed based on GEO 109/2011 and the
assessment of its implementation.
As a consequence of the above reforms, the outstanding payments of the public sector
enterprises belonging to the central government which were monitored by the Ministry of Public
Finance went down by RON 6 billion at the end of 2013, compared to 2012, i.e. from RON 12.7
billion to RON 6.7 billion, as illustrated in the chart below.
Evolution of the SOEs outstanding payments in 2010-2013
25,0
0,0
mld. lei
20,0
0,0
15,0
10,0
4,5
9,9
20,3
17,3
12,7
5,0
6,7
0,0
2010
2011
In functiune
2012
2013
In insolventa/faliment
As a result, the fiscal consolidation in 2013 was made by reducing the deficit and the
arrears of the state-owned companies, the local and central public administration, and by the
implementation of structural reforms.
IV.
Investment expenditures in 2013
In line with the public investment program approved in Law nr. 5/2013 on the 2013 state
budget, the funds allocated to investment expenditures from the 2013 state budget amounted to
RON 12,036.3 million, used to make payments in amount of RON 11,006.8 million (accounting
for 91.4% of the annual plan).
The situation of investments funded by the state budget is as follows:
million lei
2013
Planned
Payments
%
23
Total State Budget
12036.3
11006.8
91.4
Transfers among public administration units
485.7
352.6
72.6
Other transfers (including investments of SOEs)
1801.4
1707.0
94.8
Projects financed from post-accession non-reimbursable funds
5704.7
5057.1
88.6
Expenditures in respect of projects from reimbursable financing
2344.5
2303.1
98.2
Non-financial assets
1700.0
1507.0
93.4
The largest part of investment funds from the state budget was allocated from foreign
post-accession grants (47.4% of the total funds allocated by the state budget). This confirms that
EU-funded projects are now prioritized to the detriment of the projects which are funded from
national sources only.
A number of 424 investment projects were included in the public investment programs
approved as annex to the budgets of the main budget holders in 2013,of which 376 ongoing
investment (88.7% of the total number of projects) and 48 new investment objectives (11.3% of
the total number of projects).
The structure of the public investment program is shown in the below table.
million lei
2013
Number
of new objectives and
continued *)
TOTAL, of which:
A – Continued investment objectives
% of total
B – New investment objectives
% of total
TOTAL: A + B
% of total
Program
Payments
of which
SB
Total
Total
of which
SB
376
13,978.0
8,751.7
12,036.3
8,571.4
11,918.9
8,018.9
11,006.8
7,968.4
88.7
62.6
71,2
67,3
72,4
647.1
625,5
565,9
562,3
11.3
48
4.6
5,2
4,7
5,1
424
100.0
9,398.8
67.2
9,196.9
76.4
8,584.8
72.0
8,530.7
77.5
4.579,2
2.839,4
3.334,1
2.476,1
32.8
23.6
28.0
22.5
C – Other investment expneditures
% of total
The main objectives for which payments were made in 2013:

Oraştie-Sibiu Motorway, - RON 1,0516 million;
 Lugoj-Deva Motorway, RON 821.3 million;
 National Road Rehabilitation project Stage 4 (1112 km), RON 603.9 million;
 Cernavodă-Constanţa Motorway, RON 425.4 million;
24
 Rehabilitation of Braşov - Simeria rail line, a component of the Pan-European Corridor 4,
for the trains with a maximum speed of 160 km/h, section: Coşlariu – Simeria, RON 416.8
million;
 Rehabilitation of Braşov – Simeria rail line, a component of the Pan-European Corridor 4,
for the trains with a maximum speed of 160 km/h, section: Coşlariu – Sighişoara, RON
402.1 million;
 Rehabilitation of border rail line Frontiera – Curtici - Simeria, a component of the PanEuropean Corridor 4, for the trains with a maximum speed of 160 km/h, section:
Frontiera-Curtici-Arad-km 614 (section 1), RON 303 million;
 Bucureşti-Braşov Motorway, RON 279,1 million;
 Subway Thoroughway V – Stage 1 Drumul Taberei – Universitate, RON 254.4 million;
 Arad - Timişoara Motorway and Arad By-Pass, RON 243.6 million;
 The Sea Wall in Constanta Port was completed, RON 239.4 million;
 The by-pass of Constanţa Municipality, RON 230.1 million;
 The by-pass of Deva and Orăştie cities built at motorway standards, RON 221.9 million;
 Rehabilitation of national road DN 6 Alexandria-Craiova km 90+190 - km 222+183, RON
140.2 million;
 Subway Thoroughway IV – RON 140.2 million;
 Subway Thoroughway V: Drumul Taberei - Pantelimon. Universitate – Pantelimon
Section, RON 102.6 million.
25
V.
Government financial and non-financial assets
-million-
balances end of period
31.12.2011
31.12.2012
31.12.2013
595,9039
588,880.4
651,040.0
580,303.7
572,783.6
634,328.8
1,997.2
2,018.3
1,950.2
13,603.0
240,129.4
14,078.5
233,837.3
14,761.0
240,431.8
35,982.3
3,660.1
4,285.8
Participation deeds
27,343.5
30,944.8
33,492.0
Non-current claims
12,740.1
12,509.2
13,093.4
151,606.6
144,699.3
137,678.0
12,456.9
42,023.9
51,882.6
Non-financial assets Total
of which:
Fixed tangible assets
Fixed non-tangible assets
Inventories
Financial assets Total
of which:
Non-current financial assets
Creante curente
Balance in banks, state treasury
and Central Treasury
V.1. Non-financial assets of public institutions at December 31, 2013
Non-tangible fixed assets are the assets of no physical substance, which are used for a
period longer than one year.
Non-tangible fixed assets amount to RON 1,950.2 million and represent the
consideration for the IT programs, licenses, patents, development expenditures etc. owned by the
public institutions, of which:
 RON 912.2 million (46.8% of total non-tangible fixed assets) representing nontangible fixed assets of public institutions funded by the state budget;
 RON 923.5 million (47.4% of total non-tangible fixed assets) representing nontangible fixed assets of public institutions funded from the budgets of the territorial and
administrative divisions;
 RON 94.8 million (4.8% of total non-tangible fixed assets) representing nontangible fixed assets of public institutions funded from the social security budget,
the unemployment budget and the single national health fund;
 RON 19.7 million (1.0% of total non-tangible fixed assets) representing nontangible fixed assets of self-financed public institutions.
26
Tangible fixed assets include: land and buildings, technical equipment, transportation means,
livestock and plantations, furniture, office equipment, other tangible assets belonging to the
government and the territorial administrative divisions. Their balance amounts to RON 634,328.8
million, of which:

RON 254,066.7 million (40.0 % of total tangible fixed assets) in tangible fixed
assets of public institutions financed from the state budget;

RON 378,484.5 million (59.7% of total tangible fixed assets) in tangible fixed
assets of public institutions financed from the budgets of the territorial
administrative divisions;

RON 1,114.0 million (0.2% of total tangible fixed assets) in tangible fixed
assets of public institutions financed from the social security budget, the
unemployment budget and the single health insurance budget;

663.6 million (0.1% of total tangible fixed assets) in tangible fixed assets of
self-financed public institutions.
Inventories are current assets held for the purpose of being sold as part of normal operations, or
raw material, materials and other supplies to be used in the operations run by an institution.
On December 31, 2013, inventories amounted to RON 14,761.0 million.
VI.
Budget deficit and public debt financing
VI.1 Public debt
The government debt according to EU methodology accounted at the end of 2013 for 38.4% of
GDP, far below the 60% ceiling required by the Maastricht Treaty. While at end-2012 the
government debt was 38.0% of GDP, the financing needs in 2013 and the consolidation of the
foreign currency financial buffer of the Ministry of Public Finance, based on an economic growth
of 3.5% of GDP, resulted in an increase of this indicator to 38.4% of GDP at end-2013. At the end
of 2013, the general government domestic debt accounted for 17.5% of GDP and the general
government external debt amounted to 20.9% of GDP, as the consequence of a financing
process in 2011-2013 focused on a significant external funding component.
VI.2 Budget deficit financing
The 2013 budget deficit was mostly covered (approx. 80%) from domestic sources, mainly
government securities issued on the domestic market, and from foreign sources as well, through
Eurobonds issued on the foreign capital markets and disbursements of foreign loans extended by
official creditors (IFIs and bilateral institutions/government agencies) and commercial banks. The
sources needed to refinance the government public debt came from the markets on which the
debt was issued and from the foreign currency buffer available to MoPF, which was consolidated
by approx. 2 billion Euros in the course of 2013.
27
Debt instruments used in 2013 to finance the deficit and refinance the debt are:

issuances of government securities in RON, namely discounted T-Bills and Benchmark
Bonds issued on the domestic market, with medium and long maturities, up to 15 years,
with regular government securities in domestic currency issued on the domestic market in
amount of RON 48.5 billion, in accordance with the published calendar.

issuances of government securities in Euro on the domestic market, with MoPF issuing 3year bonds, denominated in Euro in amount of RON 1.6 billion, on a quarterly basis.

Eurobonds in Euro and USD issued on the foreign capital markets, in amount of 3.1 billion
Euros.

foreign loans disbursements for project financing;

disbursements of loans contracted by local governments;

privatization proceeds used under the National Development Fund mechanism.
The guarantees authorized to be issued by local governments in 2013 amounted to RON 153.87
million, of which RON 77.98 million in EU grant-funded projects.
According to the terms of GEO nr. 3/2013 introducing various measures to reduce arrears in the
economy and other financial measures, including the revision of some legislation, as revised, 467
loans were authorized for contracting by territorial administrative divisions/subdivisions from
privatization proceeds collected to the State Treasury general current account, in 2013; these
amounted to a total of RON 789.9 million, below the ceiling of RON 800 million stipulated in art. 3
par. (1) of Law nr. 4/2013, as revised and supplemented.
The drawings on loans already contracted or to be contracted by local governments authorized in
the course of 2013 amounted to RON 881.52 million, below the ceiling of RON 970 million
stipulated in art. 3 par. (1) of Law nr. 4/2013, as revised and supplemented.
28