Wednesday, November 12, 2014

No More Rubber Boots as Romania Vote Splurge Tests Budget

By Andra Timu
November 12, 2014

For Luciana Bizgan, Romania’s presidential race could mean she’ll never again turn up for work wearing rubber boots.

Across the nation of 20 million, the second-most populous of the European Union’s newer members, Romanians are witnessing Prime Minister Victor Ponta’s bid for president triggering a spending glut on streets, schools and churches. Bizgan, 36, a seamstress, wants her dirt road in the southern town of Turnu Magurele asphalted so rain doesn’t dictate her footwear.

“I just hope this time it’s my street’s turn,” she said.

The EU’s second-poorest member, whose post-communist transformation has pushed bond yields to record lows, is loosening the purse strings a year after exiting monitoring by the bloc for fiscal slackness. Next year’s budget shortfall may balloon to double the government target, leaving a headache for Ponta’s successor, should the prime minister turn his poll lead into victory in a Nov. 16 runoff.

“The government will have to make some significant adjustments next year to meet the deficit-cutting plan,” Ionut Dumitru, head of the Romanian Fiscal Council, an independent advisory body set up at the behest of international lenders, said in an interview in Bucharest.

Romania’s fiscal gap swelled to as much as 7.2 percent of gross domestic product in 2009 as the government splashed out to boost pensions and raise public wages, even as the global economic chaos following Lehman Brothers Holdings Inc.’s demise curtailed tax revenue.

Ponta’s Quest

Spending was subsequently reined in to bring the deficit back with the EU’s 3 percent limit, sending yields on 10-year debt to 3.7 percent from 5.3 percent, data compiled by Bloomberg show. Romania is targeting a 1.4 percent shortfall in 2015.

While the budget was in surplus as of Oct. 31, Ponta has urged his ministers to accelerate expenditure through year-end. His cabinet has allocated more than 1.1 billion lei ($317 million) to local authorities, part of a budget review approved three days before the presidential campaign kicked off.

Since then, Ponta has traversed the country to reopen renovated schools and inspect spruced-up roads. The premier, who won 40.4 percent of the votes in the first round of the presidential race on Nov. 2, has also pledged additional cash, much of it from next year’s budget.

“Spend the money on the kindergarten and the sewage system quickly,” Ponta told the mayor of Darmanesti during a visit to the eastern Romanian town last month. He advised him he’ll “get more,” according to televised comments.
Sidewalk Overkill

Some cities are embracing that challenge. Pavements and curbs that were installed as recently as last year are again being replaced in Bucharest and other cities. Schools and mayors’ offices are being repainted.

Extra spending may help revive flagging economic growth. GDP expanded 1.2 percent from a year earlier in the second quarter, less than a third of the 3.9 percent clip recorded in the previous three months. That was the fastest in the EU.

The European Commission said in its autumn forecast, published Nov. 5, that without new measures to boost revenue or trim outgoings, the budget shortfall will widen to 2.8 percent of GDP in 2015.

The EU and the International Monetary Fund have delayed a review of Romania’s third standby loan since 2009 until after the election as they seek proof of fiscal sustainability. They’re awaiting the 2015 draft budget, which will probably be discussed next month and approved by parliament in January, Finance Minister Ioana Petrescu said Nov. 6.
Living Standards

The government will probably try to renegotiate fiscal targets with the lenders, according to Ponta, who says his nation must spend more to raise living standards and catch up with its peers to the west.
His presidential campaign featured pledges to raise wages and pensions, shun tax increases and lower a value-added tax on fruit and vegetables. Not all initiatives will be carried out, according to Societe Generale SA economist Roxana Hulea.

“Some of the measures and promises implemented for elections will have to be reversed,” she said by e-mail from London. “Especially because the IMF accord must be put back on track.”

Days before Ponta takes on Liberal Party Leader Klaus Johannis in the election decider, Bizgan, the seamstress, is ignoring campaign topics such as judicial independence. She’s most concerned about the winner’s fiscal generosity.

“I don’t really care who wins,” Bizgan said. “I just hope we’ll live a little bit better and my kids will be able to go to a decent school.”

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

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Andrew Langley

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