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With Ally Re-Elected, Romania’s Government Moves on Budget

With Ally Re-Elected, Romania’s Government Moves on Budget

(Bloomberg) --

Romania’s government, emboldened by the landslide win of its ally in Sunday’s presidential election, announced the first concrete measures to tackle a budget deficit that’s set to blow through European Union limits this year.

President Klaus Iohannis had repeatedly chided the previous administration for tax cuts and hikes to state wages that weakened the Black Sea nation’s fiscal stability.

His former colleagues from the Liberal Party now lead a minority cabinet that took office this month. Finance Minister Florin Citu, who’s acknowledged the difficulty in tackling the budget shortfall, said Monday that next year’s gap would be near the EU ceiling of 3% of gross domestic product -- a percentage point or more less than in 2019.

“We took over an economy that was not only going in the wrong direction but was drifting and showing signs of massive imbalances,” Citu said Monday in an interview in his office in Bucharest. “The change of direction will come with next year’s budget and it’s important to show fiscal consolidation.”

With Ally Re-Elected, Romania’s Government Moves on Budget

Citu plans to convince the EU he can succeed so Romania can avoid punishment for exceeding the bloc’s fiscal rules. But with the new government having just taken power, he doesn’t want to make unpopular cuts to his predecessor’s spending promises, including a 40% jump in retirement benefits planned for September 2020.

“The pensions and salaries remain in place but we must admit that there’s a squandering of public funds through inefficient spending,” Citu said. “The budget is riddled with holes and we want to stop that.”

Next year’s plan will be sent for parliamentary approval in mid-December. Investment projects that add value to the economy will be favored, according to Citu, who backs listing state-owned CEC Bank following the European Commission’s approval of a capital increase.

The additional shortfall in this year’s budget, caused by overly optimistic revenue forecasts amid slower economic growth, will be financed by issuing more local debt. The turnaround will begin in 2020.

“We can’t afford to lose another year playing around,” Citu said.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net;Irina Vilcu in Bucharest at isavu@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Andrew Langley

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