The future government to prepare itself for 10% each in public expense cuts and unemployment

Publish date: 09-11-2009
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Romania lacks a government capable of obtaining the Parliament's vote of confidence, which is why the country cannot finalize the 2010 budget, so it is unable to obtain the bail-out loan tranches from the International Monetary Fund and the European Commission, forcing the Treasury to seek massive financing resources on the domestic market.

Friday marked a peak in the political and economic crisis in Romania. The National Bank warned it will not let budgetary pressures reflect in inflation or the exchange rate, or the level of interest rates, which will leave the future government with two options: higher taxes or cost cuts. For the first time, the IMF mission chief, Jeffrey Franks, has no longer categorically ruled out a tax hike. Franks warned that Romania's budget deficit will widen to nine percent, unless additional public cost-cutting measures are taken.

The budget deficit must narrow to 5.9 percent, which means a reduction of public expenditure by one tenth. In the short-run, the budget must tighten its belt, while in the long-run it must go on a diet, the IMF official added. Franks estimated that the unemployment rate will amount to 10 percent in the first part of 2010.

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