Tuesday, October 26, 2010

Romania Meets IMF's Budget-Deficit Target as Revenues From Higher VAT Rise

Romania’s budget deficit widened in September from the previous month to 4.56 percent of gross domestic product, below the target set by the International Monetary Fund in the Balkan nation’s bailout-loan agreement.

The shortfall totaled 23.3 billion lei ($7.6 billion), compared with a target for a gap of 28.2 billion lei, according to an e-mailed statement from the Finance Ministry in Bucharest late yesterday. The deficit at the end of August was 20.9 billion lei, or 4.1 percent of GDP.

The country is counting on a 20 billion-euro ($28 billion) loan from a group of international lenders to stay afloat amid its worst recession on record. Lawmakers cut wages and increased a value-added tax as they try to meet an IMF-agreed deficit target of 6.8 percent of GDP for the year after posting a 7.2 percent gap in 2009.

Revenue rose 3.6 percent annually and 11.7 percent on the month after the government increased the VAT by 5 percentage points to 24 percent in July, the ministry said. Expenditures rose 1.5 percent on the year and 11.5 percent from August on increased unemployment costs and the payment of overdue debt to the health-care system.

Romania’s budget-deficit figures look “promising,” IMF Mission Chief to Romania Jeffrey Franks said on Oct.20. The Washington-based lender has reason to be “optimistic” for the remaining of the year, he said.

The IMF and government estimate GDP will contract as much as 1.9 percent this year, after shrinking a record 7.1 percent in 2009. There might be an adjustment of the economic forecasts, Franks said.

To contact the reporter on this story: Andra Timu in Bucharest at atimu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez in Prague atjagomez@bloomberg.net

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