Monday, December 1, 2014

Romanian PM Victor Ponta to face IMF grilling on budget

Weakened by his defeat in the recent presidential election, Romania's Prime Minister Victor Ponta faces a new test in talks with the IMF over the 2015 budget in one of the poorest countries in Europe.

A mission from the International Monetary Fund and the European Union is expected in Bucharest on Tuesday to discuss a budget that had been delayed due to November 16's vote, which led to the surprise choice of centre-right leader Klaus Iohannis as the next president.

"The negotiations will be difficult, but on the basis of economic growth and better collection of public receipts, we should be able to build a balanced budget," said Ponta this past week, ruling out any tax hikes.

Ponta, who conceded defeat in the presidential run-off, has to convince international lenders that campaign promises such as raising the minimum wage and doubling benefits for disadvantaged children can be met while still limiting the deficit to 1.4 percent of gross domestic product (GDP).
According to Ionut Dumitru, chairman of the independent Fiscal Council charged with monitoring government tax and spending policy, the campaign promises will create a shortfall of between 3.5 and 4.0 billion euros ($4.4-5.0 billion) -- around 2.2 percent of GDP.

The government will be hard-pressed to fill that shortfall without raising taxes or negotiating a new deficit with the IMF, said Dumitru.

Romania emerged from a deep recession thanks to an emergency loan of 20 billion euros from the IMF and EU in 2009, and in 2013 reached a new two-year accord on a credit line of four billion euros to use in case of a major crisis.

The central European country promised in return to cut its public deficit and speed up reforms.

Economic analyst Cristian Grosu said he expects to see more flexibility from the IMF, which has been criticised for austerity "cures" during the economic crisis that have hampered recovery.

As long as the deficit remains below the EU ceiling of 3.0 percent of GDP, "the IMF will be lenient, while other countries like Poland, France and Italy plead for some relief so they can put more funds into investments," Grosu told AFP.

The EU on Friday gave France, Italy and Belgium an extra three months until March to fix their bloated budgets, but warned it would still enforce humiliating sanctions if they fail to curb spending.

Romania, the second poorest country in the EU after Bulgaria, has promised to invest billions of dollars into building highways and renovating dilapidated hospitals.

But in the first nine months of 2014, public spending for infrastructure was slashed by 13.4 percent. Analysts said the government's inability to develop viable projects was to blame for this.

So instead of the 2.2 percent public deficit negotiated with the IMF, the Balkan country came up with an unprecedented 0.3 surplus -- and barely 50 km of a new motorway built.

"The negative impact will be felt in 2015 too, because a billion invested in infrastructure creates jobs and makes the economy turn", said Grosu.

Romania has forecast 2.5 percent growth in 2015 after a 2.4 percent expansion this year, but some economists say they expect these forecasts to be revised lower.

The economy grew 1.9 percent in the third quarter, according to the official statistics institute.

On the political front, 42-year-old Ponta faces the start of a partnership with new president Iohannis, an ethnic German who has vowed to tackle an entrenched culture of corruption.

Iohannis, 55, leader of the centre-right Liberal Party, campaigned on an anti-graft platform to turn Romania into a "normal" country.

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