Romania decides to up targeted budget deficit

BUCHAREST (Reuters) – Romania decided yesterday to hike this year’s budget deficit ceiling to 2.5 percent of gross domestic product (GDP), against the 0.9 percent it set previously, to finance roads, healthcare and education, Prime Minister Calin Tariceanu said. Romania needs extra cash to build up its crumbling communist-era infrastructure, co-finance projects funded by the European Union and improve competitiveness ahead of accession to the bloc, which it hopes to join next year. «We will raise the budget deficit ceiling to 2.5 percent of gross domestic product to finance infrastructure projects,» Tariceanu told a news briefing. Central bank (BNR) governor Mugur Isarescu said the rise would have a limited impact on inflation and the current account deficit. «We believe the impact on inflation and on the balance of payments can be controlled,» Isarescu told reporters after discussing the move with the Cabinet and following Tuesday’s 25-basis-point rise in interest rates to 8.75 percent. «Preventatively, we took a measure to make way for a bigger (budget) deficit to ensure that its impact… on inflation and the current account is limited,» he said. «The way the budgetary construction was done, around 80 percent of the overall additional expenditure goes to investment.» On Tuesday, Isarescu said an expected increase in government spending would additionally boost domestic demand pressure, both on the external deficit and on inflation, which requires monetary policy tightening. Analysts say the impact on inflation would be limited.

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