Tuesday, January 20, 2009

Romania finmin: EU budget gap forecast wrong

BUCHAREST, Jan 19 (Reuters) - Romania's finance minister on Monday dismissed a European Commission forecast for its budget deficit as inaccurate, and said the government still plans to cut the deficit to 2 percent of GDP this year from over 5 percent in 2008.

The European Commission said in a special economic forecast Romania would see its economic growth slow down to 1.8 percent in 2009, from some 8 percent in 2008, while recording bulging budget deficits of 7.5 and 7.9 percent this year and next.

Economists, who branded plans to more than halve the fiscal deficit as unrealistic, said badly-needed spending cuts will be hard to achieve and that the cabinet will need to endorse big cuts in wages and pensions -- unlikely in an election year.

Asked to comment on the forecast, Pogea told Reuters in a brief phone interview: "No way. Probably the Commission used a projection based on old budget data, from the bill submitted to parliament by the former government."

Romania, which joined the EU in 2007, boasted the bloc's fastest growth last year but twin budget and trade shortfalls have sparked a flight of investors from local markets and many economists warn high debt levels may trigger a financing crisis.

Pogea said a gap of around 2 percent of GDP, as outlined by the centre-left government in this year's budget draft on Friday, can be attained as his cabinet would dramatically cut public sector administrative costs while boosting revenues.

"Our main priorities for 2009 will be to help adjust the budget deficit and current account to sustainable levels. We will direct all our efforts to bring the budget gap to around 2 percent at the end of 2009."

"I know this will be a severe adjustment. We have two things to do to attain this: make an adjustment of revenues from economic sectors having growth potential, bring revenues from underground economy to light and amend the fiscal code in the first quarter."

European Union member Romania ran a burgeoning deficit of 5.2 percent of GDP in 2008, significantly above the EU's 3 percent Maastricht ceiling, according to preliminary data.
Romania's new centre-left government pledged on Friday to tighten the fiscal reins this year as it struggles to finance spending in a slowing economy and reassure nervous markets.

Some rating agencies see the country, an EU member since 2007, as the riskiest member of the bloc and have made it the only one with a sub-investment grade credit rating. (Reporting by Radu Marinas; Editing by Andy Bruce)

No comments: