Romania cuts spending to get IMF aid

As reported by Radu Marinas of Romania News Watch, Romania’s government revised the 2009 budget on April, 11^th, keeping investment plans intact while slashing spending to meet the demands of a 20-billion-euro ($26.6 billion) IMF-led aid package for its economy.

The country of 22 million people on the EU’s eastern frontier is the third member of the bloc to be bailed out after Hungary and Latvia, as world financial turmoil wipes out sources of funding for an economy heavily reliant on foreign cash.

“Our main goal is to limit the negative effects of the economic crisis. Our goal is to back the relaunch of the economy, relaunch borrowing and save existing jobs,” Prime Minister Emil Boc told reporters.
Under Saturday’s revision of the budget bill, which forecasts economic contraction of 4 % in 2009, the budget deficit target was set at 5.1 % of gross domestic product, barely below last year’s levels, but leaving scope for public spending to bolster the economy.

Romania had originally planned a budget deficit target of 2 % of GDP and 2.5 % economic growth for this year.

As the global crisis engulfs Europe, Romania has turned from being the EU’s fastest-growing economy to one of its most fragile as private debt in foreign currencies and a growing budget deficit have exacerbated deep external imbalances.

Over several months, Romania has moved from being an attractive destination for foreign investment, as manufacturers poured in to benefit from fast rates of growth, to an economy plagued by ballooning debt and sour market sentiment.

Thousands of workers have been laid off and several major factories have announced work stoppages in recent months.

Finance Minister Gheorghe Pogea said the planned cuts would involve the budgets of ministries and state agencies earmarked mainly for goods and services acquisitions. A 20 % chunk of planned spending that was earmarked for investment would be maintained, he said.

Boc said a process of deep restructuring of state agencies would be soon launched and the savings incurred would be redirected to public employees with low wages while senior officials’ wages will remain frozen throughout the year.

Spending cuts will account for roughly 1 % of GDP while overall expenditure of just under 200 billion lei will represent 37.5 % of the estimated nominal GDP of 531 billion lei ($169.5 billion).

“We increased the deficit to support spending,” Pogea said, adding that total budget revenues will account for 32.9 % of GDP or around 175 billion lei, around 19 billion lei less than in the original budget plan.

The centre-left cabinet also decided to enforce from May a tax on companies’ turnover, designed especially for loss-making enterprises, to better fight tax evasion. The tax ranges from 500 to 10,000 euros per year.

 

Source:

www.romanianewswatch.com