November 12, 2018 / 5:09 PM / a month ago

IMF says Romania risks missing its fiscal deficit goal

BUCHAREST, Nov 12 (Reuters) - Romania risks missing its budget deficit goal this year, the International Monetary Fund warned on Monday, recommending the country reassess wage and pension hike plans.

The Social Democrat-led government, which has not had an agreement with the Fund since 2015, targets a consolidated fiscal gap of just below 3.0 percent of gross domestic product - the European Union’s maximum allowed threshold.

Consumption-friendly pension and salary increases by the leftists drove inflation in the import-reliant EU member to multi-year highs of around 5 percent this year and the budget gap expanded to 1.8 percent of GDP at the end of September.

Economists polled by Reuters foresee a 3.2 percent shortfall in 2018, and last week the government unveiled a plan to hike the minimum monthly wage to 2,080 lei ($503) from 1,900.

“Increases in public wage and planned changes to pension benefits should be reassessed for their negative implications for fiscal sustainability and long-term growth,” IMF mission chief Jaewoo Lee said after a one-week visit to Bucharest.

Last month, the government approved a plan to more than double state pensions over the next four years for Romania’s 5.2 million retirees, a move that critics said would put heavy strain on public finances in the long run.

“Despite several years of strong economic growth, the budget deficit has gone up rather than down, as it should during good times, and the 2018 target remains at risk without further measures,” Lee warned.

The official, who welcomed “initiatives to improve public spending efficiency—expenditure reviews and a centralized procurement,” said next year’s budget and the medium-term fiscal framework need to target smaller deficits in line with EU commitments and keep the ratio of public debt to GDP on a downward trend.

In the aftermath of the world financial crisis, in 2009, Romania had to resort to a bailout deal when the IMF, the European Commission and the World Bank moved to rescue the eastern European country.

Romania has managed to shrink its budget and current account deficits under a series of IMF-led aid deals in 2009-2015. It has not sought an IMF deal in subsequent years. ($1 = 4.1367 lei) (Editing by William Maclean)

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