Romanian Govt To Use Budget Gap To Reduce Imbalances With EU

"The country is now interested in developing as much as it can, to catch up with other EU countries. Obviously, we will try to make the best of the 3% budget deficit ceiling we are allowed. We can’t afford to have narrower deficits when there is a stringent need for investments in infrastructure, the environment and agriculture," Tariceanu said.

"I’m not so interested in what they [the European Commission – e.n] are saying. We can manage the deficit and I will make the best of the limits imposed, because our interest is to invest more, not less," he added.

According to a draft assessment of Romania’s long-term fiscal plans, quoted by Reuters on Monday, the European Commission finds it unlikely for the country to balance its budget by 2011. The Commission called for deeper deficit cuts in 2008 and in following years.

"The budgetary strategy outlined in the program is not in line with a prudent fiscal policy, necessary to contain the growing external deficit and inflationary pressures which put at risk macroeconomic and financial stability and the convergence process," the draft said.

Romania joined the European Union in 2007 and needs low inflation and a budget deficit below 3% of GDP if it wants to adopt the single European currency.

Despite economic growth of more than 6%, Romania posted a budget deficit of 2.9% of GDP last year, and no changes are expected in 2008 and 2009.
The general consolidated budget last year posted a deficit of 2.4% of GDP, under the Romanian system of accounts.

The Commission sees the deficit growing to 3.2 % this year and 3.9% in 2009, unless policies change.

"Progress towards the medium-term objective (of a balanced budget) is insufficient and fully back-loaded despite strong growth prospects," the Commission said.

"In view of the risks to the budgetary targets and the significant adjustment that would be necessary after the program period, the medium-term objective is unlikely to be achieved by 2011 as planned," it said.

The Commission also said Romania should restrain the envisaged high increase in public spending, look again at what it spends the money on and take steps to curb inflation that would complement the budget deficit cuts.

Inflation in Romania was 4.8% last year and the government and the Commission expects it to accelerate to 5.6-5.7% this year, Reuters said.

Yearend inflation in 2007 surged to 6.57%, 1.5 points higher than the central bank’s target, according to the National Institute for Statistics.

For 2008, the central bank targets inflation at 2.8-4.8%.

In its latest inflation report, in November 2007, the central bank revised its forecast for 2008 inflation, which it now sees at 4.3%.