Saturday, June 23, 2007

Romania to cut 2007 budget deficit to meet European rules


By Luiza Ilie - Reuters

BUCHAREST – Romania’s government plans to lower this year’s budget deficit by 0.2 percentage points to bring the target in line with EU requirements, Finance and Economy Minister Varujan Vosganian said yesterday. The official target will be lowered to 2.6 percent of gross domestic product, or 2.95 percent according to Brussels calculations, Vosganian said.

Romania, which joined the bloc in January, had initially targeted a deficit of 2.8 percent of GDP, but EU officials have said their accounting standards had put it at 3.2 percent.

Vosganian said the deficit cut reflects mainly an increase in expected revenues, but analysts said new forecasts were optimistic and failed to take into account low tax collection. “The budget deficit, which we will discuss on Wednesday, falls to 2.6 percent from 2.8 percent of GDP,” Vosganian stated. ”We are not reducing spending that much, we are adding various revenues, mostly from taxes on profit.”

The Black Sea state has often been criticized for poor transparency of its public finances. The International Monetary Fund has said disclosure is crucial to boosting spending efficiency and making badly needed infrastructure improvements.

In recent months, both the IMF and Brussels have urged Bucharest to tighten fiscal and budget policies, saying revenue projections were overestimated and spending plans unrealistic.

“The cut is to avoid excessive deficit procedures from the EU,” said Ionut Dumitru, head of research at Raiffeisen Bank. “It remains to be seen where they made the 0.2 percentage points adjustment, but the ‘more revenues’ argument does not hold.”

Harmful leu

The economy minister also said next year’s budget revenues would be damaged by the steep appreciation of the leu currency, which is also hurting exporters.

“For certain industries, such as textiles, the effect (of the leu’s rise) is very serious and all modernizing efforts do not manage to restore the pace of this sector,” Vosganian said.

“We will have some negative implications on revenues next year because of the evolution of the exchange rate,” the economy minister added.

The leu hit its highest level against the euro since October 2002 this week at around 3.2 per euro on foreign interest, after rising more than 4 percent so far this year.

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