February 8, 2019 / 2:43 PM / in 2 months

Romanian govt approves 2019 budget, critics say growth estimate optimistic

BUCHAREST, Feb 8 (Reuters) - Romania’s Social Democrat government approved a budget plan for 2019 on Friday, geared towards higher spending on public sector wages and pensions and based on an economic growth assumption critics said was unrealistic.

The budget, which aims to cut the European Union state’s fiscal deficit to 2.6 percent of gross domestic product from last year’s 2.9 percent, is predicated on an economic growth estimate of 5.5 percent, sharply higher than Brussels’ 3.8 percent forecast.

The bill was hotly contested by municipal mayors - including Bucharest’s Gabriela Firea, a Social Democrat - for shifting part of welfare spending onto local administrations. Other state institutions, including the agency responsible for prosecuting organised crime, said the funds they had been allotted were insufficient.

The budget now goes to parliament for approval, where it is likely to be hotly debated as the Social Democrats, whose majority has weakened in recent weeks, might need support from parties outside the ruling coalition to push it through.

“It is a well thought-out budget,” Finance Minister Eugen Teodorovici told reporters. “I have no doubt the economic growth target will be met.”

The bill estimates budget revenue at 342.7 billion lei ($81.98 billion), or 33.5 percent of GDP - 1.3 billion lei higher than in a draft published by the finance ministry last month.

Spending on state wages and social security, including a 10 percent rise in the minimum wage from January and a 15 percent rise in pensions from September, account for more than 60 percent of revenues.

Meanwhile, the government has allotted 4.6 percent of GDP for investments in a country with the EU’s least-developed infrastructure.

Economic growth could be further hit by new banking, energy and telecoms taxes that the government introduced via emergency decree in December without an impact assessment or public debate.

The decree has hit asset prices, with the Romanian leu plunging to record lows in January and the finance ministry struggling to issue domestic debt.

“The evolution of investment in 2019 will largely depend on the impact of policies introduced in December 2018 concerning the banking, energy and telecommunications sectors,” the European Commission said in its winter forecast for Romania.

As well as impacting credit, the emergency measures could also negatively impact investment decisions by making the business environment more unpredictable, it said.

Teodorovici said the government might modify the decree in the event of “signals that doing so is reasonable.” ($1 = 4.1804 lei) (Reporting by Luiza Ilie; editing by John Stonestreet)

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