“Despite the wage increase, personnel spending should remain at 6.7% of GDP in 2012–unchanged from the previous year–reflecting the continued strong decline in public employment. More broadly, the slight relaxation of the cash deficit target has a negligible impact on debt sustainability,” the report reads.
The fund warns that strict discipline on spending will continue to be essential in order to reach the budget deficit target set at 2.2% of the gross domestic product for this year.
The IMF report also shows the government has cut employee numbers in the public sector by 7,000, with the savings to be reallocated for investments and for the co-financing of EU-funded projects.
Both the IMF and the European Commission gave the green light in May to increasing public sector wages, by 8% in a first stage in June, as well as to the paying back healthcare contributions collected illegally from pensioners. The second wage increase is scheduled for January 2013.
The government pledged to restore wages to the level in June 2010, when authorities cut the public sector salaries by 25% with the IMF’s blessing. A 15% increase was made at the beginning of last year, so it would take another similar rise to see wages return to the 2010 level.
The Fiscal Council has warned over risks of exceeding the deficit target of 2.2% of GDP for the full year unless significant correction measures are taken in the second half.
After the first five months, budget execution shows that problems mainly concern spending, which rose by a much higher rate than the rate schedule for the full year (8.5% in the first five months vs. 2.4% scheduled for the full 2012), said Ionut Dumitru, head of the Fiscal Council.
The budget deficit has been on a continuous upward trend this year, reaching 7.2 billion lei (EUR1.6 billion) or 1.2% of GDP after the first five months.
The arrear targets of the central and local authorities were missed for the first time in this precautionary arrangement after a year of progress, the report also reads.
The IMF keeps its economic growth forecast for Romania at around 1.5%, but warns that growth is likely to moderate in 2012, weighed down by the euro zone recession and by deleveraging pressure in European banks.
(English version by Daniela Stoican)