Wednesday, April 29, 2009

Romania to Freeze State Wages for Rest of This Year

By Adam Brown

April 29 (Bloomberg) -- Romania’s government will freeze state workers’ wagesfor the rest of this year, reversing an earlier decision for 5 percent increase in the second half.

The freeze will help the government meet the budget-deficit target agreed with the International Monetary Fund and the European Union, Prime MinisterEmil Boc said on his Web site today.

“When the government has the resources, we can talk about wage hikes,” Boc said. He also predicted international financing will help Romania avoid a recession this year, revising an earlier forecast of a 4 percent contraction.

Romania agreed last month to an international loan package led by the IMF and the EU of 20 billion euros ($27 billion) to help finance its current account and budget deficits.

As a condition of the IMF-led loan, the government must target a budget deficit of 4.6 percent of gross domestic product this year, from a gap of 4.8 percent last year. In 2008, the government raised state wages by an average of 20 percent.

Nicolaie Alexandru, senior economist at ING Bank Romania, said the wage freeze and other measures such as some tax increases will still leave the government with a budget deficit of 6.4 percent of GDP. The forecast was down from ING’s prediction last month of a year-end gap of 7.3 percent of GDP.

“The revenue projection remains optimistic while the cuts in expenditures are not enough to bring the budget deficit to 4.6 percent of GDP,” Alexandru wrote in an e-mailed note today.

To contact the reporter on this story: Adam Brown in Bucharest atabrown23@bloomberg.net

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