IMF: Romania Unable To Curb Local Auth Spending In H1

„Current spending outside the central government (local governments and self-financed entities, such as universities and hospitals) was not reined in by measures to reduce bonuses and staffing and the impact of the large increases in wages and pensions in the last months of 2008 was higher than anticipated,” the IMF said in its report after the first review on Romania’s progress related to a EUR13 billion loan it secured earlier this year.

According to the report, Romania has met most of the targets for the first half year included in the initial program, but fiscal pressures call for „vigilance” in tackling challenges.

„This overshooting of current spending – particularly outside the central government – could endanger compliance with the fiscal objectives and lead to further undesirable cuts in capital spending unless reforms are successful at bringing it under better control,” the report noted.

Under the revised financial agreement, the IMF allowed Romania a higher budget deficit of 7.3% of the gross domestic product this year, compared to the initial cap of 4.6% of the GDP.

However, Romania must implement additional spending cuts of 0.8% of the GDP in 2009 to avoid a gap otherwise seen at 8.1% of the GDP.

Romania’s budget deficit is seen at 5% of the GDP for the first nine months, Finance Minister Gheorghe Pogea said recently.

Romania and the IMF have signed in spring a two-year standby loan agreement for EUR12.95 billion, as part of a larger financial aid amounting to EUR19.95 billion. The EU, World Bank and the European Bank of Reconstruction and Development also chipped in to help the eastern European country cushion the effects of the recession.

The IMF agreement is subject to quarterly revisions and the second IMF mission is expected to arrive in Romania late October or early November.