Romania Pledges ‘Drastic’ Spending Cuts By Yearend

“Although lower compared to the last year, costs with goods and services are above the desired level, while other expenses are below our target,” the government said in the letter obtained Tuesday by Mediafax.

It said investment costs will be lowered by 0.2% of the GDP in the second semester, while keeping “a space for a realistic investments budget.”

In addition, the government committed to personnel cuts in the public sector that will lead to reduced spending by 0.66% of the GDP in 2010.

“By the end of 2009, we will have approved the required legislation to ensure significant personnel cuts in the public sector that will lead to a gross cut in the expenses of 0.66% of the GDP in 2010, at least 0.45% of the net domestic product,” the letter noted.

The executive in Bucharest plans to cut public spending by total RON4.5 billion, or 0.9% of the gross domestic product at the second budget revision this year, Finance Minister Gheorghe Pogea said earlier Tuesday.

According to the ministry’s data, public costs with goods and services reached RON12.837 billion in the first semester, down 3.3% on the year.

The IMF agreed to allow Romania a higher budget deficit to 7.3% of the GDP this year, well above the initial 4.6% budget cap agreed upon in March, given a worse-than-expected economic contraction in the first semester.

“(…) we are determined to take additional policy measures to limit the fiscal deficit in 2009 and to reduce it in 2010,” the government noted in its letter.

For 2010, Romania and the IMF agreed upon a deficit target of below 6% of the GDP.