The government increases budget expenditures; tourists can travel to Turkey without a passport

During May, the government continued to make chaotic decisions regarding budget expenditures, although the deficit after the first four months of the current year stood at 3.24% of the Gross Domestic Product, i.e. a minus of 57.29 billion lei recorded in revenues , almost double compared to the same period last year, given that the assumed deficit target for December 31, 2024 by the state budget law is 5%.

The citizens would have expected that under these conditions, the political decision-makers at the Victoria Palace would take the necessary measures to reduce budget expenses, given that the ANAF and the Ministry of Finance reports show that more money was collected from the state budget , but expenses far exceed income. Instead of taking the respective measures, the members of the Ciolacu Cabinet adopted new emergency ordinances and government decisions by which they established wage increases - the increase of the gross minimum wage per country to 3700 lei from July 1, the 10% increase in wages for several categories of budgetary employees -, new staff hires and the granting of new financing for farmers and for companies.

All these budget expenses, however, need financing and in order to have the necessary money, the Government decided to increase the total value of the "Medium Term Notes" (MTN Program) from 68 billion euros to 75 billion euros. According to the government decision, the measure is necessary to cover the financing needs from foreign markets for the year 2024 as well as to create the necessary flexibility for the pre-financing of the needs related to the year 2025. In addition to this, the Ministry of Finance continued to borrow from the population and in during the last month of spring, after on May 13 it launched a new issue of TEZAUR government bonds, with maturities of 1 and 3 years, with annual interest rates of 6% and 6.85%, respectively.

Under these conditions, in order to keep inflation under control, but also the way in which political decision-makers understand how to manage public money, the Board of Directors of the National Bank of Romania maintained on May 13 the monetary policy interest rate at the level of 7%, the interest rate for the credit facility (Lombard) at 8% and interest rates related to the deposit facility at 6%, these levels being practically unchanged from the end of 2022.

We also mention, at the macroeconomic level, that at the end of last month, the Dutch group Damen asked the Constanţa Court to declare the bankruptcy of the Damen Mangalia Shipyard, in which the state is the majority shareholder with 51% through the Ministry of Economy, Entrepreneurship and Tourism through the state company Shantierul Naval 2 Mai Mangalia. The bankruptcy was requested in the conditions where, after the entry into force last year of the new law on corporate governance in companies in which the state is the majority shareholder, the Damen group is going to lose the managerial and operative management of the shipyard and announced as early as last August that under these conditions he withdraws from Mangalia. For the investments made in Mangalia, Damen claim that the Romanian state should pay them 160 million euros, an amount for which they have also opened an international arbitration procedure at a specialized court in Vienna, Austria. The decision of those from Damen came only a few days after the exhibition of armaments and military equipment, Black Sea Defense&Aerospace 2024, took place in Bucharest, an opportunity for Romanian companies in the defense industry to sign new collaboration agreements with large foreign companies from the respective field.

In terms of foreign policy, we note that President Klaus Iohannis returned from his visit to the USA worse than when he left. Heading towards the meeting with Joe Biden from the position of our country's candidate for the post of NATO Secretary General, which will remain vacant in October after Jens Stoltenberg's mandate expires, Iohannis was struck by the American president's refusal to support this candidacy and he was not chosen even with a promise to support the USA in case of occupying a position at the European level. Moreover, President Biden added and suggested to Klaus Iohannis that our country should give Ukraine a Patriot system for defense from those ordered from the USA, given that of the seven systems purchased, only one is operational in Romania.

The only external victory recorded last month was the decision of Turkish President Recep Tayip Erdogan to allow Romanian citizens who travel to Turkey for tourist purposes to enter the country on the basis of their identity card, the stay being allowed for a maximum of 90 days during a period of 180 days. Instead, Prime Minister Marcel Ciolacu discussed with the President of Turkey about the possibility that more companies from the respective country participate in the implementation of infrastructure projects in Romania.

At the end of last month, more precisely on May 24, the National Anticorruption Directorate announced the start of the criminal investigation on behalf of the former SRI generals - Florian Coldea and Dumitru Dumbravă - and the lawyer Doru Trăilă who allegedly promised the businessman Cătălin Hideg that they would influence the magistrates for to change his sentence of criminal conviction handed down by the trial court. The three would have asked Hideg to pay 600,000 euros, of which the businessman would have paid 100,000 euros. The prosecution of Coldea has inflamed a part of civil society and the media, which over the years have accused the former SRI general of establishing the so-called parallel state.

• Worrying budget deficit

At the macroeconomic level, the decisions taken by the Government since the beginning of the current year regarding the increase in budget expenditures were felt in the first four months of the year. Thus, according to the budget execution at the end of April published by the Ministry of Finance at the end of May, after the first four months of 2024 a budget deficit of 57.29 billion lei was recorded, respectively 3.24% of GDP compared to the deficit of 27 .35 billion lei, respectively 1.70% of GDP related to the four months of 2023. The Ministry of Finance claims that the deficit of April 2024 was also influenced by the amount of 9.33 billion lei (0.53% of GDP) representing advance payment of pensions and other rights provided by the special laws, related to the month of May, from the state social insurance budget (8.31 billion lei) and the state budget (1.02 billion lei) according to GD no. 422/2024.

From the budget execution we note that total revenues amounted to 182.70 billion lei in the first four months of 2024, registering an increase of 15.3% (year/year), mainly supported by receipts from current revenues - insurance contributions, VAT , profit tax, salary tax and non-tax income - respectively by European funds.

During this time, the expenses of the general consolidated budget were 239.99 billion lei, which means an increase in nominal terms by 29.2% compared to the same period of the previous year. Expressed as a percentage of the Gross Domestic Product, spending in 2024 increased by 2 percentage points compared to the same period in 2023, from 11.6% of GDP to 13.6% of GDP. Of these, personnel expenses amounted to 50.33 billion lei, up by 20.7% compared to the same period of the previous year, expenses for goods and services were 30.28 billion lei, up by 27.5% compared to the first four months of 2023, interest expenses were 13.78 billion lei, 1.11 billion lei higher compared to the same period of the previous year, and social assistance expenses were 83.73 billion lei in an increase of 26.3% compared to the end of April 2023. The Ministry of Finance also shows that investment expenditures, which include capital expenditures, as well as those related to development programs financed from internal and external sources, were in the first four months of the year 2024 in the amount of 31.28 billion lei, i.e. 1.6 times higher compared to the same period of the previous year, when they were in the amount of 19.29 billion lei.

The budget deficit was registered in the conditions where ANAF recorded an increase in gross budget revenues of 11.1%, according to Minister Marcel Boloş, the fiscal loss decreasing following the controls carried out by the Treasury inspectors with the amount of 430,699,073 lei, compared with April 2023, when the fiscal loss recorded was 358,707,097 lei.

In this financial context, in order to balance the state budget, the Ministry of Finance once again had to borrow from the domestic capital market, so on May 13 it launched a new issue of Tezaur government bonds, with maturities of 1 and 3 years , with annual interest rates of 6% and 6.85%, respectively. With a nominal value of 1 leu and in dematerialized form, the government bonds could be purchased between May 13 and June 7, 2024 by natural persons who reached the age of 18 on the date of subscription. "The funds obtained by the Ministry of Finance as the issuer, as a result of the issuance of state securities, will be used for the financing of the budget deficit and the refinancing of the public debt", according to the press release issued on this occasion by the public institution.

• The government increases salaries in the budget sector by 10%

Despite the budget deficit, which shows that the target of 5% of GDP for the end of 2024 will be exceeded, the Government continued to take decisions that equate to an increase in public spending and, implicitly, an increase in the deficit. Thus, in the May 23 meeting, the Ciolacu Cabinet approved an emergency ordinance by which it established a salary increase with 10%, in two installments, for several categories of employees in the administration. It is about the employees of the central administration in the fields of culture, diplomacy, within the National Office of the Trade Register and the trade register offices next to the courts, for the staff of the authorities and public institutions financed entirely from their own revenues under the authority, under the authority, in coordination of the Government, ministries and other specialized bodies of the central and local public administration, from those under the coordination of the Prime Minister, as well as those under the control of the Parliament.

This salary increase will also benefit civil servants and contractual staff from the specialized apparatus of the mayor in localities with up to 20,000 inhabitants. Thus, for the staff categories provided for by the ordinance, salaries are increased by 10% relative to the salary from December 2023, in two installments, in June and September, a percentage that is added to the salary currently being paid.

Also, the staff of the county agencies, respectively of the Bucharest municipality for environmental protection, will benefit from the salary that the National Agency for Environmental Protection benefits from.

Previously, on May 14, through two approved memoranda, the Government increased budget expenditures by supplementing the limits of commitment and budget credits, approved for May 2024, for the Ministry of Development, Public Works and Administration and for the Ministry of Agriculture and Rural Development. Through the memorandum approved for the Ministry of Development, a financing of 1 billion lei was secured for the payment of the works already executed within the Anghel Saligny, PNDL 1 and 2 and PNRR Programs. Regarding the Ministry of Agriculture, the Government approved the additional allocation of commitment credit limits and budget credits in the amount of 365 million lei each, for May 2024, in order to make payments for all forms of support for a number of 250,000 of beneficiaries, for which the administrative procedures for verifying eligibility and determining the amounts due have been completed.

Another increase in budget expenditures is represented by the Government's decision of May 23, by which the personnel scheme of the National Agency for Fiscal Administration (ANAF) was increased by 220 posts for tax anti-fraud activity, which increases the number of employees at this institution public to 22,507 people. According to the Executive, the measure considers the development and operationalization of the RO e-Seal National System by carrying out several activities by anti-fraud inspectors, a system that will ensure compliance with the traceability of road transport of goods with customs and fiscal risk on the territory of Romania and will improve the activity of the competent authorities from the central administration by modernizing and adapting customs and fiscal supervision procedures and methods to current realities.

Moreover, at the end of last month, the Government approved the organization of competitions for the filling of 2702 vacant/temporarily vacant positions within the units subordinated to the Ministry of Health - hospitals, health units without beds, ambulance services, county public health departments and the municipality of Bucharest. The most unlocked positions are at the Bucharest Emergency University Hospital, i.e. 861 positions.

Out of the total of 2,702 positions, 310 positions are for doctors, 1,221 positions are for medical assistants, 629 positions are for auxiliary health personnel (janitors, nurses), the rest representing specialized medical and health personnel (pharmacists, biologists, biochemists, physicists) , TESA staff, medical registrars, statisticians, research staff, service staff and labourers.

As if these decisions that put pressure on the public budget were not enough, Prime Minister Marcel Ciolacu announced on May 23 that from July 1, 2024 the minimum gross salary in payment will be increased from the current 3,300 lei per month , to 3,700 lei per month, which represents an increase of 12.12%.

In order to ensure that it will still have the necessary financing, the Executive approved on May 14 the increase of the total value of the "Medium Term Notes" State Bonds Framework Program (MTN Program) from 68 billion euros to 75 billion euros. According to the Executive, the measure is necessary to cover the financing needs from the foreign markets for the year 2024, as well as to create the necessary flexibility for the pre-financing of the needs related to the year 2025. The sum of 7 billion euros is intended to cover an estimated emission plan of 10.5 billion euros for 2024 and an estimated 8.5 billion euros for 2025.

• BNR maintains the level of the monetary policy interest rate

Under these conditions, the Board of Directors of the Romanian National Bank decided on May 13, unanimously, to keep the monetary policy interest rate at 7% and to keep the interest rate for the credit facility (Lombard) and the deposit facility interest rate at 8% and 6%, respectively.

With regard to future macroeconomic developments, Council members indicated that the new assessments reconfirm the prospect of the annual rate of inflation decreasing over the next eight quarters at a much slower pace compared to 2023, but also under the conditions of a somewhat higher long-term trajectory shorter than the one highlighted in the February forecast. Thus, the annual inflation rate is expected to decrease in December 2024 to 4.9%, compared to the level of 4.7% previously anticipated, and to decrease only marginally within the target range at the end of the projection horizon, respectively to 3.4 % in March 2026, in line with previous forecasts.

Regarding the near-term outlook, the Council members agreed that a significant increase in the economy in the first part of 2024 compared to the fourth quarter of 2023 is likely, implying a slight increase in the aggregate demand surplus and its return close to previously forecast values, but also a pronounced decrease in the annual dynamics of GDP in this interval, in the conditions of divergent developments at the level of aggregate demand components.

Thus, following the evaluation of the relevant indicators, it was assessed that, in the first quarter of 2024, the growth of private consumption remained solid, especially given the large jump recorded by the annual dynamics of retail sales in the first two months of the current year, while that the pace of gross fixed capital formation was probably strongly weakened by the decline experienced in January by the volume of construction work. At the same time, an increased negative contribution to the annual dynamics of GDP is possible from the side of net export, given that the variation in imports of goods and services continued to outpace that of exports in January-February 2024. Against this background, the trade deficit and - slightly accelerated the growth in annual terms over the entire period, but the current account deficit moderated it significantly, as a result of the improvement of the secondary income balance, due to the inflows of European funds of the nature of the current account, noted the members of the Council.

At the same time, it was shown that increased uncertainties and risks arise from the conduct of fiscal and revenue policy, having as sources in 2024 the result of the budget execution from the first months of the year, the dynamics of salaries in the public sector and the full impact of the new pension law. Beyond this time horizon, the increased risks are associated with the fiscal and budgetary measures that could be implemented in order to achieve the fiscal correction and position the budget deficit on a sustainable downward trajectory compatible with the requirements of the excessive deficit procedure and with the conditionalities attached to other agreements concluded with the EC, Council members argued.

• Joe Biden shattered Klaus Iohannis' dream of promotion

Between May 7-9, President Klaus Iohannis paid a working visit to Washington, D.C., United States of America, during which he also met with American President Joe Biden. In addition to the topics addressed by the two heads of state, among which were the situation in Ukraine and the Black Sea basin, as well as the strengthening of security in the Euro-Atlantic area, there was also the candidacy of Klaus Iohannis for the position of Secretary General of NATO, which it will remain vacant in October 2024, the month in which Jens Stoltenberg's mandate expires.

At the end of the meeting, it emerged from the statements of President Klaus Iohannis that he did not receive Joe Biden's support for the post of Secretary General of NATO, rather the American President asked him to provide a Patriot system to Ukraine, a decision that would be taken in during the upcoming meeting of the Supreme Council of Defense of the Country, a difficult decision considering that Romania has operationally only one such system out of the seven purchased from the USA. Following the visit of President Klaus Iohannis to the USA, his candidacy remained only with the support of Hungary, with Turkey stating that it no longer supports the President of Romania for the high position at NATO.

Regarding Turkey, we also mention that on May 21, on the occasion of Prime Minister Marcel Ciolacu's visit to Ankara, Turkish President Recep Tayip Erdogan decided that Romanians can travel to the country that spans two continents - Europe and Asia, only with the identity. According to the presidential decree signed by Erdogan, this measure only covers tourist and transit trips to Turkey, with a maximum stay of 90 days during a 180-day period.