Bloomberg News

Romania Seeks Lower Budget Gap as 2012 Draft Gets Approved

November 25, 2011

(Updates with economic growth forecast in fifth paragraph, exchange rate and inflation in sixth paragraphs.)

Nov. 25 (Bloomberg) -- Romania’s government approved the 2012 budget draft, targeting a narrower deficit through spending cuts to meet pledges made to its international lenders.

The plan envisages a deficit of 1.9 percent of gross domestic product next year, compared with this year’s target of 4.4 percent, Prime Minister Emil Boc said.

“Considering the international environment, where the biggest European countries are heading toward austerity, Romania is forced to remain extremely vigilant and prudent,” Boc told reporters after a government meeting in Bucharest today.

Romania will freeze wages and pensions, continue shedding state jobs and revamp money-losing state companies before a general election next year. The country is under pressure to keep to its 5 billion-euro ($6.6 billion) loan agreement with the International Monetary Fund and the European Union.

The budget is based on a forecast for economic growth of 2.1 percent in 2012, less than the previous estimate of 3.5 percent. The government expects the economy to expand 1.5 percent to 2 percent this year, Boc said.

The leu rate projected for the 2012 budget stands at 4.26 per euro compared with 4.24 per euro this year, while inflation will probably end 2012 at 3.5 percent, Finance Minister Gheorghe Ialomitianu said.

Romanian Accounting

The government may let the budget deficit widen next year to as much as 2.5 percent of GDP under Romanian Accounting Standards, as agreed with the IMF and the EU, as long as it keeps the gap below 3 percent under European Accounting Standards. This would enable the bloc to end excessive-deficit procedures against Romania.

The Fiscal Council, an independent experts-group led by Ionut Dumitru, Raiffeisen Bank Romania SA’s chief economist, said that the “government’s prudent approach in constructing the 2012 budget is justified by domestic and international financing constraints,” according to an e-mailed statement today.

“The council noticed, though, the lack of a firm commitment in meeting the new deficit target as the draft project states explicitly the possibility of increasing this target throughout 2012, which could be interpreted as slippage by financial markets,” Dumitru said in the statement.

Cutting Jobs

Romania is trimming the public-sector workforce to 1.1 million by the end of next year from 1.4 million in 2010, President Traian Basescu said yesterday. The government has already eliminated 180,000 jobs, he said.

The country will try to push ahead with plans to sell minority stakes in state-owned companies, such as Transgaz SA, Transelectrica SA and Romgaz SA, and majority stakes in Oltchim SA and newly-formed power companies Oltenia SA and Hunedoara SA, even during a time of market turmoil that led to the failed sale of a 9.8 percent stake in OMV Petrom SA in July.

Romania plans to borrow about 57 billion lei ($17 billion) next year and 2.4 billion euros ($3 billion) to finance its budget deficit and pay for maturing debt, Gheorghe Gherghia, the deputy finance minister, said today.

The government will send the draft law to Parliament on Nov. 28, Boc said.

--Editor: Hellmuth Tromm

To contact the reporters on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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