Wednesday, June 24, 2009

Romania Has Six Months for Action to Narrow Budget Gap, EU Says

By Adam Brown

June 24 (Bloomberg) -- Romania must take measures to narrow its budget deficit within six months or face action for violating European Union deficit limits, the EU’s executive arm said.

The government must also narrow the budget gap within a year to a maximum of 3 percent of gross domestic product, from a deficit of 5.4 percent of GDP last year, the European Commission said in an e-mailed report today.

“There are risks concerning the effective implementation of planned expenditure measures in 2009,” the commission said. “Achievement of the budgetary targets needs to be underpinned by concrete measures.”

Most east European nations are in recession as the global financial crisis curbs exports and shuts off capital flows. Romania’s government says its economic slowdown is shrinking state revenue while pressuring the government to increase expenditures on infrastructure investments and social areas.

Romania agreed last month to an international loan package led by the International Monetary Fund and the EU of 20 billion euros ($28 billion) to help finance its current-account and budget deficits and slow the economic contraction.

As a condition of the IMF-led loan, the government must target a budget deficit of 5.1 percent of GDP this year. The average gap of the 16 nations using the euro will swell to 6.5 percent of GDP next year from 5.3 percent this year and 1.9 percent last year, the commission forecast last month.

Romania’s economy plunged an annual 6.2 percent in the first quarter as consumer demand plunged 13.7 percent, driven by slowing lending and wage growth while economic woes in the country’s key trading partners in western Europe curbed exports.

The government announced in May it will freeze state wages this year after raising them by an average 20 percent last year to help meet the deficit target. It also plans to raise some taxes and lower spending in many ministries.

To contact the reporter on this story: Adam Brown in Bucharest at abrown23@bloomberg.net

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