European Commission to make own appraisal of Romania’s economy

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An European Commission team took part in the International Monetary Fund (IMF) Mission to Romania in the context of international financial assistance given through the Economic Package for this country, but it is going to make own appraisal in October, the EC Representation to Bucharest informs in a release remitted on Monday.

EC delegation, headed by Fabienne Ilzkovitz, Unit head for a country group, including Romania, within the Directorate General for Economic and Financial Affairs, concluded that implementation by Romania of its economic programme is satisfactory.

Despite that, given the worsening economic conditions in the first half of the year, the Government must adopt added measures, including structural reforms aimed to limit budget deficit increase.

Romania’s GDP contracted 6.2 percent per year, in real terms, in the first quarter, more than it was forecasted in June, when Romania’s economic adjustment programme was convened.

The latest authorities’ outlook referring to the economic growth this year was revised downwards, to some minus 8 percent, with a modest recovery in 2010, because of the household weak financial situation and rising unemployment are to keep domestic demand at low levels.

Reflecting a reduced economic growth, 2009 revenues to the budget are expected to be 3.5 percent lower than anticipated. Romania’s Government declared it was ready to apply added expenditure cuts, of some 0.8 percent of the GDP, in 2009, to limit the worsening of the budget situation, says the release.

Structural reforms will be further speeded up to continue the budget consolidation beyond 2009.
They will include added measures of labor force restructuring in the public sector and improvement of fiscal discipline at the level of local administration, of the decentralized units and of state-owned enterprises.

The said reforms will be implemented in addition to the law on fiscal responsibility provisions, in ongoing adoption process, and of the wage and pension systems reform in the public sector.

In October, EC is to make own appraisal prior to the transfer of the second tranche of the medium-term financial assistance loan, in total value of 5 billion euros. The loan is aimed at backing up Romania’s balance of payments. In July, the commission transferred the first tranche in the value of 1.5 billion euros.

Current assessment made by IMF and Romania’s Government places the revised deficit target to -7.3 percent of the GDP in 2009 compared to -4.6 percent at the start of the programme (respectively -7.8 percent and -5.1 percent of the GDP, in line with the European system of accounts ESA95).

For 2010, to reduce the deficit below -6.5 percent, according to ESA95, some added measures were convened mainly focused on the salary cuts in the public sector and capping the spending on goods and services, at the same time giving priority to investment projects co-funded by the EU.

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