Romania’s Finance Minister Gheorghe Pogea said on Wednesday he was “convinced” that the International Monetary Fund will allow the country to run a bigger budget deficit this year under the terms of an aid deal, as the economy could contract by up to 8.5 percent.
Representatives of the IMF are in Bucharest until August 10, reviewing Romania’s progress in meeting conditions attached to a 20 billion euro aid deal that the European Union state secured in March.
The deal set a budget shortfall of 4.6 percent of gross domestic product for this year, based on a forecast for an economic contraction of 4.1 percent.
Economic conditions have deteriorated sharply since Bucharest and the IMF agreed to the deal, however, as the global financial crisis slashed demand and lending, and contraction is seen more than doubling.
“The global recession … will lead to an economic contraction that may reach 8-8.5 percent, and the first impact will be a drop in public revenues,” Pogea told reporters after a meeting of the center-left government.
“As a result, we will discuss with the IMF about raising the deficit, and I am firmly convinced that they will accept, but at the same time, we must certainly enforce structural reforms that will ensure budget balance.”
Pogea did not say by how much Romania will ask for the deficit to rise. Earlier this week, the IMF’s mission chief said the Fund will be flexible with Bucharest. However, the government must enforce deep reforms of its public administration, which employs about a third of Romania’s total workforce of around 5 million people and is seen as bloated and largely inefficient.
On Wednesday, Prime Minister Emil Boc said the cabinet will thin out the state sector by eliminating or merging state agencies, which will lead to a little more than 9,000 job losses.
He also said Romania will stick to its calendar for IMF-prescribed public sector reforms. A single wage bill should be approved in October, while pension reform should occur by December at the latest.
These are laws that will shake the Romanian public system to its core,” Boc said.