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UPDATE 2-Romania budget gap to rise, doubts on planned cut

Published 12/16/2008, 09:00 AM
Updated 12/16/2008, 09:05 AM

(Adds more analyst comment)

By Radu Marinas

BUCHAREST, Dec 16 (Reuters) - Romania's budget gap may soar to 4 percent of gross domestic product this year, its prime minister designate said on Tuesday while analysts cast doubt on the centre-left coalition's pledge to cut it to 2.5 in 2009.

A draft governing plan published by local television but yet to be endorsed by senior coalition leaders, foresees a slight decrease in budgetary spending as a percent of GDP next year to 35.1 percent from an estimated 35.5 percent this year.

Earlier in the day, designate prime minister Emil Boc said Romania was expected to record a deficit of 3.5-4 percent this year, above the European Union's fiscal ceiling of 3 percent of GDP and up from an earlier planned 2.3 percent.

"The current situation, domestic and international, remains a difficult one, requiring big budgetary constraints," the draft, which proposes a set of anti-crisis measures based largely on social-related protection moves, said.

The draft plan was published by Realitatea TV on its website, and its authenticity was confirmed to Reuters by a senior coalition official.

Analysts say greater social spending, including a hike of the minimum pension to 350 lei ($121), an 11 percent rise in the minimum wage to 600 lei or planned cuts of power prices for households, are the main barrier to meeting the budget gap goal.

The coalition, made of the centrist Democrat-Liberal Party and the Social Democrats, also agreed to keep the 16 percent profit and income tax unchanged over 2009-2012 but approved cuts in the value added tax on staples while hiking luxury goods.

Boc's team of ministers and his governing programme is expected to win parliament endorsement on Dec. 22.

"It will be very hard to get a (gap) reduction ... as they (the coalition) are committed to this type of social spending that could put bigger pressure on the budget deficit," said Nicolaie Alexandru-Chidesciuc, economist at ING in Bucharest.

"I see no reasons now to adjust my 5.5 percent forecast for 2009."

Economists say Romania's high current account gap and dependence on foreign funds mean it needs to rein in spending, chiefly on welfare, and come up with tough austerity measures to prevent economic trouble rather than stimulate growth.

They say a consumption slowdown in the poor Black Sea state could occur from as early as the first quarter of 2009 as global slowdown and tighter credit markets hit Romania's economy.

"Romania has a credibility deficit right now. We are at risk of entering the EU's excessive deficit procedures if the new government does not quickly enforce moves to limit spending while boosting budgetary revenues," said Ionut Dumitru, head of research at Raiffeisen Bank in Bucharest.

The outgoing government was aiming for a budget deficit at 2.3 percent of GDP this year and wanted to lower next year's to 2 percent, but its targets were widely seen as unrealistic. (Reporting by Radu Marinas; Editing by Ron Askew)

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