ING Says Romania’s Plan To Cap Deficit At 3% Of GDP Ill-timed

Romania’s planned amendments to the Constitution in order to limit the consolidated budget deficit to 3% of the gross domestic product may be positive on the long run, but its immediate opportunity is questionable, according to a report from ING Bank.

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"The idea to limit the budget deficit at 3% of GDP makes little sense to us. Shifting from a budget deficit above 3% of GDP - noticed with a lag by the authorities - would require surpluses in subsequent months. Achieving those surpluses would mean tax increases and cuts in spending, all implemented swiftly," the report noted.

According to ING analysts, this could harm growth even more and still would not help in reaching the limit.

"In reality, to combat a crisis, anti-cyclical measures would be needed - like increased spending - and this would move the budget deficit higher temporarily. But this might not be allowed by the constitution," ING said.

Romanian President Traian Basescu Wednesday proposed several changes to the constitution, including limiting the budget gap to 3% of GDP and the public debt to 60% of GDP, in accordance with the Maastricht criteria.

"Romania has pledged to lower the budget deficit to 3% of GDP in 2012, but I don't believe this can be done in such a short period. Maybe in 2013 or 2014," Chidesciuc said.

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