ECONOMY

Bucharest plans 2.5 pct budget deficit in 2007

BUCHAREST – Romania plans to maintain ambitious spending plans for next year, its first in the European Union, by keeping a budget deficit target of 2.5 percent of gross domestic product, officials said yesterday. Finance Minister Sebastian Vladescu said yesterday he would introduce a 2007 budget draft to the government this week, proposing such a deficit level, unchanged from the 2006 plan. The centrist Cabinet raised its budget deficit ceiling to 2.5 percent of GDP this year from an initial 0.5 percent to secure extra cash from Brussels before Romania joins the EU. Romania needs to spend more on infrastructure projects if it is to take advantage of funds from Brussels which are available under co-financing agreements. «The budget deficit for 2007 will be at 2.5 percent, within the parameters stipulated in the Maastricht Treaty,» Vladescu said in a statement. «I estimate that the government will adopt the budget law by the end of this week.» In an interview with Reuters in August, Vladescu said he would propose a 2 percent gap for 2007, well above International Monetary Fund suggestions, in an effort to build up investment and improve shabby infrastructure for EU membership. Prime Minister Calin Tariceanu said that under the budget plan, the government would earmark more than 5 percent of GDP to the education and research sectors and greater funding to the ailing health system. State pensions are to rise by 19 percent. «Next year’s budget will be based on healthy economic growth. It is a budget designed to back Romania’s strategic development plans,» Tariceanu told reporters after a meeting of his Liberal Party. Difficult to spend Economists had said the government is unlikely to meet its fiscal deficit goal this year because of poor management of infrastructure projects. They say changes in next year’s budget plan could further boost inflationary pressures in the emerging economy. «Strong private and public spending will certainly boost inflationary pressures in the medium and long term,» ING chief economist Florin Citu said. The IMF has said Romania should be running a balanced budget to control booming household spending and rein in the external gap, but the government has argued it needs money to upgrade crumbling infrastructure to compete in the EU market. The central bank had warned that higher government spending could damage its fight against inflation, which is made difficult by rampant consumption. Romania’s accord with the IMF expired last month, but a visiting IMF mission is in town discussing the country’s macroeconomic performance and budget plans. Romanian inflation fell to a post-communist low of 6 percent on the year in August, but analysts fear a boost in spending in the last quarter might fuel more price rises.