Romania to see the widest budget deficit in CEE this year by its current fiscal policy, Erste mulls

Publish date: 03-02-2009
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Romania's budget gap could be worryingly the widest in the Central and Eastern Europe of almost 7 percent of the gross domestic product (GDP) unless the country changes its fiscal policy, according to the Austrian-based financial group Erste.

The government's budget gap target is pinned at 2 percent of GDP, but the chief economist of the largest bank by assets in Romania, Banca Comerciala Romana, controlled by Erste, Lucian Anghel said the target is unrealistic and the real figure is 5 percent.

"Even if the 2009 budget bill is very ambitious in cutting spending and postponing some salary hikes in the public field we foresee a deficit ceiling of 5 percent of GDP," Anghel said.

Romania's Cabinet announced a package of stimuli to fight the economic crisis, but it remains to be seen whether this will be included in the budget bill, Anghel said. This bill is being hashed over with trade unions before a final approval in the government. Then, it will be sent to the Parliament for endorsement.

Ensuring extra funds from an international financial institution to finance the budget gap could have positive effects on the drowning exchange rate and on the market's credibility in the investors' eyes, Anghel added.

If Romania asks for a financial aid from the International Monetary Fund it could promote bonds as the program would offer a credit line to reduce net emissions of state bonds and trigger more aggressive monetary facilities. But, Bucharest authorities are reticent about going to the IMF for help.

Moreover, with the narrowing of lending in Central and Eastern Europe and the expansion of pension funds, demand for state securities will grow to 1-2 percent of GDP, according to Juraj Kotian, co-head of research on fixed incomes and macro economy of the Erste Group for CEE.

The CEE region failed to adopt any bailout plants, unlike the Western Europe where governments looked for stimuli to save the economy.

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