Romanian Premier Banks on Economic Zip to Bridge Budget Gap

  • Grindeanu says in interview that deficit will stay below 3%
  • Consumer-led growth boosted further by industry, exports

The European Union’s second-fastest growth rate will help Romania keep its budget deficit within the trading bloc’s limits, according to the country’s prime minister.

With industry and exports reinforcing a boom in consumption, Sorin Grindeanu says this year’s government forecast for 5.2 percent economic expansion, which surprised analysts when it was published, no longer seems optimistic. No tax increases or spending cuts will be required to keep the fiscal gap below 3 percent of gross domestic product, he said, even pledging more cash to fund state pay rises next year.

Sorin Grindeanu

Photographer: Abir Sultan/AFP via Getty Images

“We’ll take all the measures needed to support the pace of growth,” Grindeanu said Tuesday in an interview in his office in Bucharest. “The minister of finance and I are monitoring budget revenue and spending on a weekly basis so we can make sure we meet the targets and any potential slippages are corrected in due time.”

Ignited by tax cuts and salary increases for state employees, Romania’s economy jumped 5.7 percent from a year earlier in the first quarter. While the consumer-led surge has raised concern from the central bank about whether the growth is sustainable, further fiscal easing is on its way. Parliament Wednesday approved a law that would swell the state’s salary bill by at least 10 billion lei ($2.5 billion) next year alone.

“We made all the calculations and we can support the wage increases,” Grindeanu said. New infrastructure projects, higher EU fund absorption, increased foreign investment and job creation will boost revenue, he said.

The EU isn’t convinced that will suffice. The European Commission predicts Romania’s budget shortfall will reach 3.5 percent this year and 3.7 percent in 2018. The country’s currency, the leu, is lagging behind regional peers this year against the euro, weakening 0.8 percent.

The economy could get another shot in the arm from a plan to set up a sovereign investment fund that will include stakes in state-owned companies and help fund infrastructure and health-care projects. Legislation to create the fund is “almost done,” according to Grindeanu. About 400 million euros ($450 million) from the sale of the state’s stake in Enel SpA’s local units will be used to capitalize it.

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