Saturday, February 7, 2009

Romania okays 2009 budget,sends bill to parliament

BUCHAREST, Feb 6 (Reuters) - Romania's government will send an austere 2009 budget bill to parliament on Friday, pledging to slash the deficit, keep wage growth in check and allot a hefty 7 percent of gross domestic product to much-needed investment.

Analysts say the bill, finalised by the centre-left cabinet late on Thursday, implies politically risky cutbacks to cut the gap to 2 percent from above 5 in 2008, that may still prove too little to prevent a full-blown financing crisis as growth slows.

The six-week-old government pledged to cap public sector wages and cut other spending as forecasts for growth worsened and analysts cast doubt on it drawing in the cash to fund a current account gap that reached 12.2 percent of GDP last year.

The cabinet has also approved a set of anti-crisis measures to accompany the budget, aimed at insulating the poorest Romanians from the impact of a sharp economic slowdown, officially forecast at 2.5 percent.

'The budget is aimed at and focused ... on maintaining and creating new jobs, on EU fund absorption and on ... establishing a balance between economic development and social protection to protect the population with smallest incomes,' Prime Minister Emil Boc said in a night television talk show late on Thursday.

'In 10, 15 days from now on we will have a budget (adopted in parliament).'

Ratings agencies officially rank Romania as the European Union's most risky bet for investors, and in question now is its ability to fund a gaping external deficit, and avert a deeper recession or run on the battered leu currency.

To do that, it may have to drastically reform its vast and highly-unionised state administration, which accounts for a third of its workforce and has some of the highest average wages in the economy following triple-digit pay hikes in recent years.

'Budget revenues are clearly overrestimated,' said Nicolaie Alexandru-Chidesciuc of ING (nyse: ING - news - people ) Bank in Bucharest. 'They should have tried to reduce spending more taking into account that revenues would be affected strongly by possible economic recession.'

The plan envisions to allot a hefty 7 percent of GDP to investment, mostly in roads, health and schools, raise pensions and wages in the public sector by 5 percent, in line with inflation but a far cry from double-digit hikes of recent years.

Economic pain is increasingly visible as thousands of workers are laid off and major manufacturers such as ArcelorMittal announce repeated work stoppages.

It also enforced a total wage freeze for government officials, deputies and diplomats in 2009, a move affecting around 7,500 officials.

It will also waive a tax on reinvested profit and boost share capital of state-owned banks CEC and Eximbank to help small and medium-sized firms.

Uncertainty over economic growth this year adds to worries that Boc's budget plans may be unrealistic, with some analysts saying that building a budget on a projection of 2.5 percent may be too optimistic.

No comments: