Inflation and the budget

Over the last weeks the Government in Bucharest has made a number of important announcements regarding prospective revenue hikes.

Pensions will be increased starting January 1, 2015.

So will salaries of medical personnel, as well as allowances for institutionalized children or the elderly in state-owned homes.

The budget bill for 2015 will cover for all these costs. How?

The Government has not yet advanced any draft budget for 2015 due to the campaign for the presidential election, which has sparked the anger of the right-wing opposition, who has accused the Social Democrats of lack of vision.

In an interview to Radio Romania, the Finance Minister Ioana Petrescu tried to dismiss these accusations.

“All technicalities related to the draft budget for 2015 will be discussed with the IMF starting in December. It will be announced by the new Government in January 2015, because the IMF insisted on arranging an official assessment mission for that month. The IMF’s policy is to not negotiate with interim Governments.

"As you know, there is a possibility that the Government might change, therefore the IMF’s mission has been scheduled for January 13. The budget for 2015 is due to be finalized by then”, Ioana Petrescu said.

Vice-President of the Liberal-Democratic Party Catalin Predoiu claims, however, that the Government is in fact delaying the announcement in order to hide problems linked to slashing investments from the public eye.

“Eliminating state investment from the Government’s economic policy will virtually dent any real chance of economic growth in 2015”, Catalin Predoiu said.

Reducing investments in the public sector has prompted the European Commission to lower its economic growth forecast for Romania, which will not exceed 2% by the end of 2014.

In turn, National Bank of Romania Governor Mugur Isarescu believes such a measure is conducive to a waning economic growth, although it might also have a bright side: if the Government introduces measures to combat corruption and tax evasion, this would signal an improvement in the efficient use of public spending, given that anti-corruption efforts are not just an issue of morality, but greatly impact the country’s economic proficiency.

The National Bank of Romania has also lowered its inflation forecast for the end of the year, from 2.2 to 1.5% and from 3 to 2.2% in 2015.