Romania to cut budget costs by $1.9 bln in IMF deal

BUCHAREST, Romania

Romania will curb spending by 5.5 billion lei ($1.9 billion) this year, in part through cuts in public pay, to meet its new budget deficit goal agreed with the IMF, Finance Minister Gheorghe Pogea said on Tuesday.

Although the International Monetary Fund has allowed Bucharest to raise the deficit to 7.3 percent of gross domestic product from the previous 4.6 percent, the government still has to slash costs to offset plunging revenues.

Cuts worth 0.3 percent of GDP will come from sending all public sector employees on unpaid holidays for 10 days or shortening working hours in the coming months, Pogea told a news conference.

Spending on goods and services will fall by 2.49 billion lei, or 0.5 percent of GDP. Other measures to cut spending envision scrapping pay for overtime hours. Some 300 million lei in revenue gains are expected from a minimum tax for companies.

The measures are seen as a short-term solution as Romania struggles with recession that has forced it to seek an aid package worth 20 billion euros from the IMF and other lenders this year.

In addition, Romania has to overhaul the public sector to increase transparency and oversight and to reduce the pay bill from the current 9 percent of GDP to 6 percent in 2015.
“The set of policies in 2009 aims … to ensure the short-term budget balance for this year … and to continue to adjust via additional measures so that the deficit reaches below 6 percent in 2010,” Pogea said.

He said public sector layoffs were due mostly next year but declined to offer a figure.

“By the middle of next year … given the commitment to cut wage costs by 0.6 percent of GDP, there will be a large number of layoffs,” Pogea said when asked whether the IMF had sought a specific number of job cuts.

Romania plunged into deepening recession this year as the global economic crisis decimated domestic consumption, a key driver of growth in recent years, by hitting manufacturing and limiting access to credit.

Nominal GDP is seen at 497.3 billion lei this year, from a previously envisioned 531.2 billion , Pogea said, reflecting a contraction of up to 8.5 percent which in turn will shave 17 billion lei off expected tax receipts this year.