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| PESSIMISTIC FORECASTS FOR THE ROMANIAN ECONOMY 31/07/20099 |
| (2009-07-31) |
| Last updated: 2009-08-03 17:42 EET |
President Traian Basescu:
“If the economy shrinks even further and state budget returns are lower than expected, meaning a higher deficit, then we will have to find a way to compensate for the deficit to meet the agreed 4.6%. We are doing our best to stay within these parameters so as to be able to enter the euro zone on the 1st of January 2014.”
The president believes the first measure to be taken as soon as possible by the government in order to cut budget expenses is to lay off 20% of state employees. Such a measure would affect 300,000 of Romania’s 1.4 million state employees. The president’s call was prompted by the restrictions imposed by the International Monetary Fund, which asked the government to reduce state expenses by 2.4 billion euros. Even so, collective redundancy won’t be sufficient, analysts say, because it will only generate 1 billion euros of savings.
In Bucharest, an International Monetary Fund team is assessing the way in which Romania is implementing the economic programme agreed by Romania in exchange for a 20 billion euro loan signed last spring with the Fund, the European Union, and the European Bank for Reconstruction and Development. The Romanian authorities now fear that the economy may shrink by 8% by the end of the year and want to convince the lending institutions to accept a deficit of 7.5% of the GDP - compared to the 4.6% that was negotiated in March.
The good news is that the International Monetary Fund might show flexibility and agree to a higher deficit level, though within certain conditions attached. The head of the IMF mission to Bucharest, Jeffrey Franks:
“We are in the early phases of talks with the government and one of our goals is to re-evaluate the macroeconomic forecasts and their impact on the established budget deficit target. We are willing to show flexibility in these talks because we realise the economic situation has become considerably worse, but our flexibility has its limits, and we will establish them together with the government.”
The talks are set against an ominous background, as it has just been announced that over 100,000 Romanian companies closed or suspended their activity since the beginning of the year. This figure will double by December, especially as a result of the introduction of the minimum tax band and difficulties in accessing loans. What’s more, at least 70% of the small and medium sized companies that survived the economic crisis are expected to start cutting back their numbers of employees.
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