Friday, March 7, 2008

Romania pledges to cut spending

The Financial Times
By Thomas Escritt in Bucharest

Published: March 7 2008

Romania’s finance minister has promised spending cuts of €1.1bn ($1.7bn, £842m) this year, cutting the country’s target budget deficit from 2.7 to 2.3 per cent of gross domestic ­product.

The move follows a chorus of concern over the danger of overheating in the Romanian economy. The European Commission had warned that the country’s budget deficit could reach 3.1 per cent this year, above the ceiling set in the stability and growth pact agreed by EU member states. Critics have also warned of excess wage growth in the public sector.

Details of the spending cuts are not yet forthcoming, but Varujan Vosganian, the finance minister, promised essential investment would not be affected. “We will dramatically reduce spending on furniture, cars and TV acquisitions for ministries,” he said.

Cristian Mladin, an analyst at BCR, owned by Austria’s Erste Bank, said a high deficit was justifiable. “Romania needs to develop more infrastructure projects, so a deficit of 2.3 per cent is sustainable.”

However, Matei Paun, managing partner at BAC, the specialist south-east European investment bank, suggested that with annual GDP growth running at 6 per cent, the government should be building up a surplus. “In good times you should generate a budget surplus which you can then spend as the economy slows down or enters negative growth territory,” he said.

Romania has been at a political impasse since the breakdown of the ruling centrist coalition last year.

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