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| THE ROMANIAN ECONOMY UNDER CLOSE SCRUTINY BY THE EUROPEAN UNION 13/02/2008 |
| (2008-02-13) |
| Last updated: 2008-02-14 18:37 EET |
The European Union has voiced concern over the potential increase in Romania’s budget deficit and the development of the inflation rate.
Romania faces a high risk of exceeding the budget deficit ceiling of 3% from the Gross Domestic Product. According to a report released in Brussels after a EU finance ministers’ meeting, the draft budget does not help solve macroeconomic unbalances.
This year the Romanian Government is counting on a budget deficit of 2.7% of the GDP. But the European Commission expects the deficit to reach 3.2% or even 3.9% in 2009, unless more firm policies are implemented. This is the reply of the Romanian finance minister, Varujan Vosganian:
“We talked about our commitment to introduce a budget rectification leading to a drastic cut of expenditures, a measure which we intend to take very soon, until the beginning of March. We estimate that expenditures will be reduced by about one billion euros. Potential additional incomes in certain areas will be used exclusively to reduce the budget deficit. We have also expressed our hope that all these measures which we have already started to apply will eliminate the risks of activating the excessive deficit procedure for Romania.”
Let us recall that this procedure would involve sanctions. But here’s the Romanian finance and economy minister talking about the future:
“No one should expect Romania to have a budget surplus like Finland and Sweden or to have a deficit of only 0.1 – 0.2%, because Romania still has some gaps to fill.”
And minister Varujan Vosganian is right. In order to fill those gaps, Romania needs huge amounts of money. The 13 billion euros granted by the European Union would be welcome, but insufficient.
The recent warning from the Union came shortly after the European executive body said that Romania should also implement policies to reduce inflationist pressures. According to the report released on Tuesday, these pressures continue to exist. Thus, the annual inflation rate increased to 7.26% from January 2007 to January 2008 to reach the highest level over the last year and a half. We recall that the inflation target set by the Romanian Central Bank for this year is 3.8%, while the prognosis of the same institution is a lot more pessimistic: 5.9%.
Economic analyst Dragos Cabat tells us what he expects will happen further:
“It is possible that the appreciation tendency of food stock prices to continue over the next few months, until summer when, should this be a normal agricultural year and also due to the domestic supply, we will see these increases slowing down or even relaxing. In turn, in the services field, it is possible we will see further significant price increases.”
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