IMF: Without fiscal policy decisions budget deficit may reach 8.4 pct

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Romania’s budget deficit may reach 8.4 percent of the GDP in 2010 in the absence of some new fiscal policy decisions, which would impose an adjustment by 2.5 percentage points of the GDP in order to observe the Stand-By Agreement target, says the Report made by IMF experts and published on the institutions site on Wednesday, together with the Romanian Government’s Letter of Intent and with the Technical Memorandum of Understanding.

The majority of measures assumed by the Romanian Government during negotiations and through the Letter of Intent, to get an adjustment of 2.5 percent of the GDP, is based on the spending cuts, especially by lowering the weight of payments for public sector wages to 7 percent of the GDP by 2015 (instead of 9 percent), the reduction of fraudulent disability pensions and of the early retirement, as well as the freezing of public acquisitions of goods and services.

IMF experts stressed that the reference level of the unitary wage system is provided to rise by 56 percent between 2010 and 2015, which would involve “reductions impossible to operate among the public sector staff”. In its Letter of Intention, the Romanian authorities pledge to cut the budget deficit to 3 percent of the GDP by 2012.

“In case these measures fail to give the expected results till the arrival to Bucharest of the fourth IMF evaluation mission (April-May 2010, editor’s note), the Government is ready to take added adjustment measures, including in the field of boosting the revenues”, says the Report. It is obvious that in order to push up revenues higher taxation will be needed or an improved collection.

“Even though exports can be an important source of economic growth for Romania, an increased demand on the domestic market is the key of a sustainable development”, emphasized IMF experts. IMF estimates that in 2010 the unemployment rate in Romania will go up to 10 percent, to drop to 8 percent in 2011.
In the Letter of Intention, signed by Romania’s National Bank Governor Mugur Isarescu and by the Minister of Finance Sebastian Vladescu, the Romanian authorities appreciate that the net level of foreign assets stood at 5.1 billion euros at 2009-end.

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