Romania’s EU Convergence Program Considers Higher Retirement Age, Limited Wages, Recession

The document, presented Friday by MEDIAFAX, was approved by the government and includes economic forecasts for 2008-2011:

-Romania’s economy will increase an average 4.2% in 2009-2011, below its potential of 6%, due to internal and external risk.

-real gross domestic product growth for 2010 and 2011 is forecast at 4.5% and 5.5%, respectively.

-the Government is also considering the risk of recession for the first time in nine years, in case the effects of the global crisis worsen, bad weather conditions for agriculture such as drought or floods and unfavorable evolutions in international prices for oil, gas or food.

-retirement age will be increased and possibilities of early retirement will be reduced.

-wages in the public sector will be increased, in 2010-2011, in ratio to the inflation rate, below labor productivity, and hiring in the public sector will be blocked, as this year, and the Government is determined to continue its policy to cut costs.

-foreign direct investments in Romania will be reduced to half this year, to EUR4.7 billion from over EUR9 billion in 2008 because of the global financial crisis, but will increase to EUR5.4 billion in 2010, in accordance with the forecast economic relaunch.

– the Government will introduce, with the new Fiscal Code, a taxation system for economic activities insufficiently taxed, while maintaining the principles of the flat tax, and will apply a budget strategy entailing more austere and efficient public spending.

-the state will foreclose companies in debt starting with assets that do not affect their core activity.

-Romania’s annual financing needs will reduce gradually from a maximum 12.9% of GDP registered in 2007 to 7.1% in 2011.

-the inflation target for 2010 was set at the level of 2009, of 2.5% – 4.5%, mainly because of the stringent need to reach this interval, which is essential to preserve the credibility of the central bank after inflation targets were missed in the past two years. In 2009, the inflation rate is seen lower compared to 4.5% at the end of last year, while the annual average is seen at 5%. Inflation is seen lowering gradually to 3.2% in 2011.

-the relaunch of global economy will bring about a relaunch of Romanian foreign trade and exports are seen rising by 9.9% in 2010 and imports by 6.8%, to reach growths of 12.9% and 9% respectively in 2011.