ECONOMY

Romanian budget plan not adequate

BUCHAREST (Reuters) – The International Monetary Fund called Romania’s planned cut in the 2008 government budget deficit a «step in the right direction» yesterday, but warned it was not sufficient to significantly cool down demand growth. Bucharest cut its consolidated budget deficit target for this year to 2.3 percent of gross domestic product from 2.7 percent on Wednesday in a bid to meet European Union rules and quell resurgent inflationary pressures. Cutting domestic demand is crucial for Romania to contain inflation, which rose above 7 percent in January, and its double-digit current account deficit which economists say threatens to unravel recent economic gains. «The rectification is a step in the right direction,» senior regional IMF representative Juan Jose Fernandez-Ansola told Reuters. «But it may not be enough… and thus puts too much of the burden on monetary policy to bring down inflation.» Romania has grown rapidly in recent years driven by robust foreign investment, efforts by firms to modernize and strong household spending as Romanians race to improve living standards. However, the spending spree has fanned significant import growth, widening the external shortfall and raising concerns that if foreign cash dries up the country may encounter financial problems. Consumption-driven government spending has increased the concerns as foreign observers complain that Bucharest’s ruling centrists have shown inadequate response to signs of economic overheating. The European Commission warned Romania earlier this year that it expected the country’s deficit to grow to 3.2 percent of gross domestic product in 2008 and 3.9 percent in 2009, above the bloc’s 3 percent ceiling.