Romanian Finance minister: 17.5 billion lei less for the state budget incomes by the end of 2009

„The state budget incomes will decrease by 17.5 billion lei by the end of 2009”, Romanian minister of Finance Gheorghe Pogea declared on Tuesday. A day after the IMF delegation chief in Romania, Jeffrey Franks, presented the results of the negotiations in Bucharest, Pogea confirmed that Romania-s economy will record a 8% to 8.5% drop this year. Gheorghe Pogea presented the fiscal measures agreed with the IMF, announcing that all state employees will be forced into a 10-day unpaid vacation.

These are the main statements that minister Gheorghe Pogea added to the claims already made by Jeffrey Franks:

On the IMF mission in Romania:

the aim of the International Monetary Fund mission was to evaluate the performance criteria and the indicative targets, which had been agreed for the external finance package

the second instalment depends on the first mission’s results

we believe that the second instalment, to be awarded in September, will not be questioned

the intention letter with the IMF has already been finalised and we will make it public after it will be signed by the Ministry of Public Finance and by the National Bank governor

the additional deficit comes also from outrunning the expenses budget

we believe that the IMF board’s verdict will be positive

Macroeconomic data for 2009-2010

the real GDP contracted by 6.2% in the first quarter of 2009 and we were expecting that

for 2009 we’re anticipating a more brutal contraction of the public incomes and we estimate 17 billion lei by the end of the year

this means an increased budget deficit

the initial 7.5% account deficit will drop to 5.5% in 2009, a strong adjustment against 2008

it is essential for the next period to recuperate the income losses caused by the downward economic cycle

with this in mind, the Government will take additional measures to limit de fiscal deficit in 2009 and to reduce it under 6% in 2010

for the budgetary incomes, we said that that there will be 17.5 billion lei less due to the aggravating macroeconomic environment

the drop in incomes caused: by the VAT will amount to 4.3 billion lei; by the social contribution – 5.5 billion lei; and by the non-fiscal incomes – 4-2 billion lei

we anticipate that the GDP for 2009 will be 497.3 billion lei, against the initial sum of 531.25 billion

we anticipate a 4.3 inflation rate by the end of the year and a 5.5% account deficit

the current account deficit changed sooner than we expected, encouraged by the change in commercial deficit from the private sector

The adjustment

had we not taken these measures, the general budget deficit would have reached 8.4% of the GDP

the IMF, EC and World Bank mission accepted the increase in deficit from 4.6% to 7.3% of the GDP

the adjustments we will take in 2009 involve 5.5 billion lei

the measures agreed with the IMF aims at two clear aspects: assuring a short-term balance for the rest of 2009 to limit the increase in deficit and continuing to adjust, so that the deficit won’t go over 6% in 2010

the new budget projection to be made this month will address the following:

1. 400 million euros more for state guarantees in 2009 for financing projects involving both European and Romanian funds for local authorities, ministries etc. 2010 will involve 200 million euros

2. in the social department, the negotiations addressed mainly protecting vulnerable categories: the retired, old persons and those made redundant due to the crisis. October 1st will see the social pension increasing from 300 to 350 lei and the pension point will increase by 2%. Plus, the redundancy budget will be adjusted, to secure the 864 million lei

3. the pension budget will received 500 more million lei in 2009

we will review the social insurances legislation, for a more exact improvement of these funds in case of the vulnerable persons, and we will definitely have stricter controls to make sure the money are not distributed erroneously

4. regarding local administration, we allocated 400 million lei for infrastructure programmes involving European funds

5. regarding transport infrastructure, the budget received a 500 million lei supplement, plus 400 million lei from local authorities

6. we will allicate 364 million lei for Romanian National Rail company (CFR) to pay the electricity bills

7. we will make sure to back the necessary sums so that Romania can join Schengen in 2011 and all the projects addressing borders security will benefit from the required funds.

Fiscal measures for 2009 and 2010

starting October 1, the reinvested profit will not be taxed

we will evaluate the impact in 2010 to inform the public

we will improve the income correction; we need to reduce this income decrease due to the economic cycle

in order to adjust the 5.5 billion lei, we will take the following steps:

– during September-November, all state employees will be the object of the reduction of the usual work norm, equivalent of 10 working days, and the incomes will be diminished as such. The GDP will save 0.3%

– staff will either go on a unpaid holiday, or there will be a combination of unpaid holiday and the reduction of work time, from 8 to 6 hours

– everyone will join this effort, but without affecting the good functioning of public services

– in 2009, extra-hours will not be paid and there will be awarded free time, and the bonuses from this year will be cancelled

2010 prognosis

we keep our engagement of reducing the GDP deficit under 6% in 2010

the main goal is to reduce budget state costs

on a local scale, we will have staff normative regulations

we will finalise public services cost and quality standards; the aim is to accelerate the decentralisation process

it is crucial for 2010 to prime fiscal strategy on medium and long term, targeting measures meant to improve the public finance quality and the country’s sustainable development

we’re targeting six departments: restructuring the public sector, reforming the salary system, reforming the pension scheme, the law for fiscal responsibility and the elaboration for medium term, reforming state enterprises, restructuring the financial relationships and the reforming the fiscal administration