Romania's state budget for this year is built around economic growth of 1.6%, a budget deficit of 2.1% of GDP, an average EURRON FX rate of 4.5 and a C/A deficit of 4.2% of GDP. Recent negotiations with the IMF and EU resulted in a more conservative official economic growth forecast (1.6% instead of the 2% released last December) and a higher budget deficit (2.1% of GDP instead of the 1.8% of GDP initially envisaged). The main takeaway from this years state budget is the unchanged budget deficit in nominal terms, after two consecutive years when it declined by an average of RON 10bn/year. In 2013, the government will raise public expenditure by almost RON 15bn, the biggest annual fiscal stimulus provided to the economy since 2008 but in a different macro environment characterized by prudent policies in line with the recommendations of the IMF and EU. The money will go to higher wages and pensions, the reduction of the stock of unpaid bills in the public health system, higher investments in road infrastructure and the co-financing of EU structural and cohesion funds. The energy sector will be subject to additional taxation which would yield RON 1bn (0.2% of GDP) to the state budget in 2013. New taxes already established on natural resources could be seen as an intermediary step towards a possible hike in royalties after 2014, when the government will be allowed to take such a step according to the privatization contract of OMV Petrom signed in 2004. The taxation of agricultural activities, the increase in the minimum wage, a new tax levied on micro-enterprises, higher excise for alcohol and tobacco and higher property taxes will bring additional money to the state budget.
We read this years budget as pro-growth and see at least two more growth drivers in 2013: gradual improvement on global financial markets and in confidence indicators, which could finally spread into the real economy, and a normal agricultural year. Our real GDP forecast is 1.1% based on assumption of revived household consumption, but we see a chance for higher growth if the factors previously mentioned come into play. The key rate will be kept unchanged until 1Q14 and then cut by 25bp, but the 3M ROBOR will fall 40bp by the end of 2013, due to additional liquidity provided by the NBR to the markets.
Source: bne