Finance Minister Sebastian Vladescu stated he would propose to the Government a budgetary deficit objective of 2% of GDP for next year, namely 2.1 billion euros, somewhat narrower than this year's target.
Vladescu explained his intention by the need to bolster investments in infrastructure, specifying that the idea would be discussed by the Government this month. The 2% of GDP gap translates into 2.1 billion euros, compared with the 2.5% of GDP target set for this year, namely 2.3 billion euros.
By increasing the previously announced budgetary deficit target, the Finance Ministry gives up the deficit reduction policy it has embraced over the past 5 years. Starting 2000 and up to last year, the budgetary deficit narrowed down from 1.6 billion euros (4% of GDP) to 642 million euros (0.9% of GDP).
"We want a deficit of around 2% of GDP. We've lost at least one year in starting infrastructure projects on the account of the budgetary constraints of 2005, and this has caused significant problems in terms of the absorption of European funds," said Vladescu.
The Government has revised this year's budgetary deficit target upwards twice, from 0.5% of GDP (a target that was initially set last autumn) to 2.5% of GDP. The explanation was always the same, namely the need to enhance public expenditures to develop investments in infrastructure.
Nevertheless, in the first half of the year Finance Ministry statistic data show that for the time being the budget is holding more money than ministries can spend, with the budgetary surplus standing at 1 billion euros, that is 1.12% of GDP. Moreover, investments made with public funds (capital expenses of the budget) are below the level of subventions in the first half of the year as most ministries have postponed their expenses for the second half.
Vladescu says this year's deficit of 2.5% of GDP will not fuel inflation, which he puts at 6.5% for the end of December. "We are highly aware of the inflationary risks generated by the budgetary deficit target... The NBR agrees with the fact that we can lower these risks. We must convince them we can find the right balance and it seems we've come to an agreement," said the Finance Minister. He specified that the extra money that was allotted through this year's two budgetary adjustments, which have increased the budgetary deficit target five times, must be spent on projects and to non-inflationary ends.
Vladescu said the extra sums would not be used to pay salaries or to cover some social expenses.
The Finance Minister also stated there was no need for a stepped-up reduction of inflation because there's no rush for euro area integration. He anticipates Romania could adopt the euro after 2011-2012.
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