The budget rectification sets exchange rate at RON 4.3/€1

The first two months of this year have already brought a massive budget rectification, of 75 percent of the current account deficit, on the heels of an improved trade balance and record foreign direct investments (FDI), worth €1.37 billion. Thus, FDIs surged 38 percent in January-February 2009, due to capitalization of subsidiaries by foreign mother groups, due to the lending deadlock.

Regarding the minimum tax, Pogea said that companies who legally suspend their activities and start-ups in their first year of activity will not be affected. The Minister of Finance added that the introduction of the lump-sum tax will not lead some companies filing for bankruptcy.

“This measure has nothing to do with the crisis, but with equidistant and equitable treatment of economic agents,” Pogea added. He also indicated that some 109,000 companies registered an average monthly turnover worth approximately €250. Moreover, Pogea said in a statement yesterday that the Finance Minister could withdraw or lower the reinvested profit tax as of this year’s second half.

Prices are expected to rise 5.8 percent, according to the new calculations of the state budget, presented yesterday by the Ministry of Finance, which is also expecting 600,000 unemployed, compared to the present 513,000, and gross average wage of RON 1,820, below the RON 1,863 level registered in February. Exports are to drop 15 percent and imports by one quarter, which will contribute to a narrowing of the current account deficit to 7.5 percent of gross domestic product (GDP).

However, the good news in the real economy is accompanied by much weaker performances in the public sector. In the first three months of 2009, the budget deficit widened to 1.56 percent of the GDP forecast for this year, considering a 14.2 percent increase in expenditures and a 6.2 percent drop in revenues. Personnel-related expenses, which soared 13.5 percent, and goods and services spending, which rose 11.9 percent, had the greatest impact. “The fact that we adjusted expenses is an act of responsibility. If we had not done this, how would we have been able to finance deficits of 6-7 percent of GDP? Through rectification we have also targeted the maintaining of public investment spending above 7 percent of GDP. Some RON 37.9-38 billion will be allocated for investments,” Pogea said.

During the negotiations with the International Monetary Fund (IMF), the government committed to finalizing the single state employee salary law by 1 October, as well as the public pension system law by year-end. Pogea indicated that the government will finalize the fiscal law by the end of November, which will allow, among others, the drafting of multi-annual budgets and a long-term spending framework.