Budget deficit raise expected to pressure balance of payments

The National Bank believes that as long as the money from the increase in the budget deficit from 0.9% to 2.5% of GDP is mainly directed at investment projects, there will be more pressure on the balance of payments than on inflation. The increase in the budget deficit by increasing spending for funding projects will make an impact on the balance of payments especially, with inflation to be affected to a lesser extent, stated the National Bank Governor Mugur Isarescu (photo). “Any larger deficit creates a problem, of course, some pressure on either the balance of payments or inflation. If, as the Finance Minister said, most of this money, 90% goes only to projects, then there will be more of an impact on the balance of payments, rather than on the inflation,” Isarescu stated. The budgetary deficit scheduled for this year will be upped from 0.9% 2.5% of GDP following a new budgetary adjustment, whereby additional funds will be allocated especially to the road infrastructure, education and health care, Finance Ministry sources say. Isarescu explained that the problem of the central bank remained a “difficult one”, however, with all the factors leading to inflationary pressures, at a time where there are very few instruments left to “battle” with inflation. “Even us, the central bank, can hardly resort to other restrictions on lending to offset additional spending,” the NBR Governor said.