Romania is at risk of overshooting the budget-deficit target of 3.19 billion lei agreed with the International Monetary Fund for end-2010 by around 1.5 billion lei, as the Romanian government had a too optimistic outlook on the labor market, ING Bank said in a report.
ING Bank economists said that the too optimistic view of the Ministry of Finance on social security contributions would eventually lead to an overshooting of the budget deficit target.
"We believe there is a chance the budget deficit target will be missed mainly because of a too optimistic outlook on the labor market. In our view, the gap could be slightly wider than 1.5 billion lei. Accordingly, we believe it is possible that this year’s budget gap will surpass the 31.9 billion lei target and forecast a figure of about 33.5 billion lei", ING said.
The MinFin expects revenues from social security contributions to increase by 4.18% this year to 49.8 billion lei from 47.8 billion in 2009. Such a view seems to be based on their assumption of an improving labor market and on an increase in the number of contributors.
However, ING economists don’t rule out some improvement in the labor market later this year, and expect the registered unemployment rate to close this year at 9.3%.
“The Ministry of Finance may fail to meet the budget deficit target agreed with the IMF. But if the government committed to contain the gap, state spending could be kept under control, but certain revenues categories will still not grow by as much as the state would expect. Revenues from social security contributions are expected to increase by 4%, which seems to optimistic given the rising unemployment rates and salary freezes”, ING Bank’s senior economist, Nicolae Chidesciuc (photo) told Wall-Street.
The consolidated government budget deficit agreed with the International Monetary Fund is 31.9 b
