Romania prime minister says cuts needed after GDP overestimated

Reuters News

1/4/2013 8:56:54 AM - Reuters News

BUCHAREST (Reuters) - Romania's government will have to cut 1 billion lei (nearly $300 million) from its budget spending this year because the country's 2011 economic output was overestimated, Prime Minister Victor Ponta said on Friday.

Romania's 2011 gross domestic product was overestimated by 20 billion lei ($5.9 billion), said Ponta, who won an overwhelming election victory in December.

The European Union's second-poorest state, which has a 5 billion euros aid deal led by the International Monetary Fund, targets a budget deficit of 1.8 percent of GDP in cash terms in 2013, down from a target of 2.2 percent in 2012.

"In reality, in 2011 we have had 20 billion lei less gross domestic product and this means ... this year we have to cut another 1 billion lei to meet the deficit target," Ponta told his cabinet.

He said he plans to replace the management of the National Statistics Board, which is in charge of GDP data, although he did not believe the error was intentional.

The overestimation amounts to 0.3 percent of 2011 GDP and there is a slight risk Romania will miss its 2012 deficit target. The revision will reflect on this year's GDP figures and on 2012 budget data, which will be released later this month.

"If the 2011 GDP was revised visibly, this means the 2012 one will likely be lower than thought, and this year's as well," said Vlad Muscalu, senior economist at ING in Bucharest.

"Assuming there are no other differences, the 2012 deficit would be 0.1 percent of GDP higher. Not a big deal."

A previous rightist administration enforced deep spending cuts and tax rises in 2010 to stop the budget gap ballooning and its resulting unpopularity swept Ponta to power.

Austerity has helped to steady Romania's finances but analysts expect the economy to have grown only 0.4 percent in 2012.

"One billion lei because of a mistake in calculation - where do we cut a billion?" Ponta said. "From health, education, police, the army?"

Romania is seeking a new IMF deal to replace its current agreement expiring in March and has yet to agree this year's budget. ($1 = 3.3703 Romanian lei)

(Reporting by Luiza Ilie; Editing by Sam Cage/Ruth Pitchford)