Analysts: Next year's budget relies on uncertain sources

Extra funds for pensions will raise next year's social security budget to some RON 31 billion (€9.9 billion), from RON 21.12 billion (€6.74 billion) in 2007. The pension rise was part of controversial legislation recently passed by Parliament, and signed by President Traian Basescu, who was initially opposed to the law.

According to the draft budget, Gross Domestic Product (GDP) will amount to RON 438.6 billion (€140.15 billion) in 2008, according to estimates by the National Prognosis Commission, compared to RON 381 billion (€121.73 billion) of the GDP forecast for 2007.

The budget deficit will amount to RON 11.8 billion (€3.76 billion), accounting for 2.7 percent of the GDP. Budget revenues are forecast to be 39 percent of GDP, from 35.18 percent in 2007. Spending is set at 41.7 percent of GDP in 2008, compared to 37.98 percent year-on-year.

According to Vosganian, the government considered European funds amounting to 2.68 percent of GDP for next year's budget. "This means we hope to absorb European funds worth some €3 billion, for which we have already allocated Romania's contribution [to the EU budget" he said.

However, analysts do not believe that EU structural funds should be considered for the draft budget. "This budget relies on uncertain revenues. Structural funds worth €3 billion have been added. These are uncertain resources. If we cannot absorb those funds, the budget deficit will exceed three percent," the Director of local NGO Applied Economy Group (GEA), Liviu Voinea, told Business Standard. According to the Maastricht Treaty, one of the conditions for acceding to the euro-zone is a budget deficit lower than three percent.

For 2007, Romania has set a budget deficit worth 2.8 percent of GDP. Several financial bodies have warned Romania that budget spending will likely increase, while the European Commission warned that the deficit could rise up to 3.2 percent by the end of the year.

Vosganian said the government will allocate 6 percent of GDP for education, and supplementary funds will be allotted to transportation, agriculture, and construction. Thus, traditionally neglected areas, such as health and research, will benefit from more funds than in previous years. An extra RON 4 billion (€1.27 billion) will be allocated to the health system, while research will have a budget worth RON 2.9 billion (€0.92 billion).

Vosganian told Business Standard, "there are no losing ministries, because revenues will be higher by some RON 8-9 billion (€2.55-2.87 billion), to be directed to education, research, infrastructure and pensions," he said.

"There are no losing ministries, because revenues will be higher by some RON 8-9 billion (euro2.55-2.87 billion), to be directed to education, research, infrastructure and pensions Varujan Vosganian Economy and finance minister