IMF: A credible budget for Romania should come first

 

He told Business Standard that the budget for 2009 must be carefully drafted, especially the chapters related to public spending. In this field, Romania must increase resources for capital expenditures and investments. He advised that the government “look carefully at the full expenditure side of the budget, and determine what are the priorities, with a view to supporting sustainable economic growth.”

Furthermore, if a loan from the IMF is needed, a credible budget would be the most important requirement coming from the fund.

“The financing constraint is very tight, but fiscal policy needs to contain its contribution to an economic slowdown that is already underway because of private sector retrenchment,” Ansola said. However, he declined to specify the possible amount of a loan from the International Monetary Fund. “It would be premature to talk about this issue because Romania has not asked for a loan from the IMF,” he said. Ansola stressed that the fund “is in constant dialog with the Romanian authorities, but that it has not specifically discussed an IMF loan.”

Currently, Romania “is facing a significant economic slowdown and some questions about policies going forward. I would recommend to have a credible program that restores confidence,” the IMF representative told Business Standard.

Speaking of Romania’s economic forecasts, Ansola said that foreign direct investments are likely to decrease. “This is just a reality of the world we live in,” he said. Moreover, “the current account deficit should narrow to about 10.5 percent of GDP in 2009, but the level is still very high, and financing this gap will continue to be challenging,” Ansola added.

His comments were made as the government is still discussing the budget for 2009, and increasingly more economists are saying that the country’s economy needs foreign financial assistance.

During yesterday’s meeting, cabinet ministers discussed the draft budget that is to be approved 29 on January 2009.

According to a Vice President of the ruling Liberal-Democratic Party (PD-L), Gheorghe Flutur, the government maintains a budget deficit target of 2 percent of gross domestic product (GDP). The European Commission was recently estimating a 7.5 percent deficit for Romania in 2009.

Ministers also discussed a plan drafted together with employers and trade unions to counter the impact of the crisis. The main features in the document relate to the establishment of at least 50,000 jobs in micro-enterprises, and the stimulation of operations of small and medium-sized enterprises (SME), and the auto and petrochemical industries.

Sources within the two ruling parties, PD-L and the leftist Social Democratic Party (PSD), said early yesterday that some 20 percent of public sector employees could be laid off in an effort to save money.