State budget revenues are hyped and the public deficit will beat 3% of the GDP, Raiffeisen warns

Revenues to Romania's state budget, estimated at 39.4 percent of the GDP, are overestimated and this will lead to a much wider budget deficit against the forecasted one, a report by Raiffeisen Bank Romania reads.

The bank notes the country's overall expenditures cannot be cut in a year when general elections are scheduled. Romania, which joined the EU on January 1, 2007, is now the fourth EU member which revises its budget deficit cyclically, the document says.

The bank's analysts said the 2008 scheduled budget has no connection whatsoever with Romania's economic reality. The Raiffeisen officials believe revenues to the public budget will hold a 34 to 35 percent share in the GDP.

The analysts said overestimating revenues seems to be a common habit the Romanian authorities share. Romania's economic development is still low when compared with that of the other EU members and filling the gaps means massive investments in both the transports and rural infrastructure.

Another factor that must be developed refers to human resources. Raiffeisen shows the country's public debt is low and this will force the public area to contract large credits in the future.

The bank's analysts believe the present budgetary policy lacks predictability when it comes to planning and putting it to practice. The officials said this year should follow the same scenario witnessed in the previous when the budget recorded a surplus in the first ten months. It than dived due to massive investments made in the current consumption area.

The government in 2007 rose the value of the pension point to 37.5 percent of the gross average salary. Another increase, to 45 percent of the gross average salary, followed.

The central bank is currently trying to control inflation through a series of measures taken especially within the inter-banking market. Romania witnessed a 6.57 percent inflation rate at the end of 2007, thus exceeding the 4 percent target it wanted to reach.

For the end of this year, BNR is aiming at a 3.8 percent inflation rate. After the 8 percent increase in January, the central bank voiced concerns over the level of consumption which stimulates inflation.

The present interest levels for the minimum mandatory reserves imposed on banks stand at 20 percent of banks' lei debts and 40 percent for hard-currency debts.

The central bank previously explained the overall demand level it is not backed by Romania's offer for goods and services. This has two main effects: it affects the external balance of payments and stimulates inflation, which widened over BNR's 4 percent target. BNR emphasized the main reason for the high consumption level resides in the increase of salaries, which exceeds labor productivity.

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