European Commission economic predictions: 8% budget deficit in Romania for 2010

The European Commission published on Wednesday, May 5, „the spring economic predictions” for 2010, which indicate a budget deficit much beyond the level Romania negotiated with the International Monetary Fund (IMF), namely 5.9%. At the same time, the EC estimates that the GDP will increase by 0.8%, also below the level agreed with the IMF, that is 1.3%. Inflation is estimated to reach 4.3% by the end of 2010. Some of the causes triggering the increase of the budget deficit: the drop in the incomes in Q1, the possibility of going above the spending, Rompetrol bonds.

The IMF and the EC revised Romania’s economic growth this past autumn, setting a 1.3% target for 2010. Plus, the 5.9% budget deficit target was named as well.

According to the patronages present at the IMF discussions this week for the fifth instalment, the agreement prediction could be downgraded to zero economic growth.

On the other hand, Governmental sources quoted by Romanian news agency Mediafax say that Finance minister Sebastian Vladescu informed Government members in the May 5 sessions that the IMF requested the drop in spending and increase in incomes, including by the raise in taxes. He also said the 2010 budget deficit will be bigger than 5.9% of the GDP and the Fund could accept 6.3-6.4%.

„According to the latest data, the budget deficit reached 8.3% in 2009, much above the 7.8% target. The differenced was triggered by the debts towards departments such as health and by a nominal GDP smaller than expected”, the Brussels executive’s document shows.

„The measures included in the state budget for 2010 may not be sufficient to reach the deficit target due to:

1) the effect rendered by the deficit bigger than expected for 2009;

2) a 0.5% lower increase in GDP in 2010 than the forecast at the basis of the state budget setup;

3) the significant drop in incomes during the first 2010 quarter, mainly because of the VAT, the social insurance contributions, income taxes;

4) the fact that it is expected for the Government to receive only half of the incomes initially estimated from Rompetrol bonds;

5) possible increased spending.

Without additional measures, the budget deficit could reach 8% in 2010. During European Commission mission of experts to Romania, its expected to reach an agreement with the Government regarding additional measures to reduce the deficit”, the EC document indicates.

According to the same data, „the public debt is estimated to be 23.7% of the GDP in 2009. the main reasons for its raise from 13.3% in 2008 were: the drop in GDP, the increase in interests, the depreciation of the national currency. Although it is much below the Maastrich Treaty reference value, the public debt level is expected to grow by 6.8 percentages and with another 5.3% in 2011, when it could reach 35.8% of the GDP”.