IMF is concerned with new ceiling for budget deficit in Romania

BUCHAREST (Reuters) – The International Monetary Fund is concerned about Romania’s government decision to nearly double this year’s budget deficit ceiling, an IMF release posted on its website showed late on Thursday. The IMF and the European Commission have urged Romania, which hopes to join the European Union in 2007, to address its ballooning external deficit boosted by rampant domestic demand, mainly by tightening its fiscal policy. Last month, the centrist government hiked the budget gap ceiling to 0.9 percent of gross domestic product from an originally planned 0.5 percent in a bid to spend more money to upgrade crumbling infrastructure to compete in the EU market. «[Executive] directors, while acknowledging that fiscal sustainability is not of immediate import, expressed concern about the government’s recent decision to increase the 2006 deficit target,» the IMF’s so-called Article IV review stated. «Fiscal consolidation will be essential to containing domestic demand, making room for capital inflows and ensuring sustainability over the medium term.» IMF directors warned that slowing disinflation and the widening current account deficit were challenges. The current account deficit was forecast to ease to 8.5 percent of GDP in 2006 from 8.7 percent of GDP last year, but was up from 3.7 percent of GDP in 2000.