Romanian Deficit Splurge Risks Alarming Creditors, Isarescu Says

Romania risks frightening creditors and ratings companies by sharply increasing its budget deficit through tax cuts, central bank Governor Mugur Isarescu said.

Isarescu said he hopes planned measures including lowering the value-added tax and excise duties will be enacted gradually, so as not to damage fiscal and macroeconomic stability. The European Union’s fastest-growing economy in the first quarter doesn’t need more stimulus, according to Isarescu, who estimated the cuts will widen the budget gap by 2.3 percentage points.

An increase of that size “rings alarm bells,” he told a conference Friday in Bucharest. “With such deviations, our plane could land on the ice cap in the North Pole instead of in Brussels.”

The tax cuts proposed by Prime Minister Victor Ponta -- struggling for his political survival amid a corruption scandal -- pits the government against Isarescu and President Klaus Iohannis, who both oppose the measures. While Iohannis sent the bill back to parliament this month, lawmakers may meet after Aug. 15 to resume debates and may pass the changes without further input from the president.

With Romania already at odds with with the EU and the International Monetary Fund, implementing the proposed cuts would risk raising financing costs and stoking currency volatility, Isarescu said. The leu was little changed against the euro at 4.4230 as of 12 p.m. in Bucharest, leaving it 1.3 percent stronger this year, data compiled by Bloomberg showed.

“You can’t play games with macro stability,” Isarescu said. “It was hard securing it and now we’re looking to make an experiment. Funding costs will increase and eat up the entire fiscal room available, and in one or two years you’ll realize everything was in vain.”

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