Personnel spending capped by law until 2012

At the IMF’s request, the Finance Ministry wants to set a cap on personnel spending and on spending of the main budget components of Romania’s consolidated budget for 2011 and 2012, via a draft law that does not, however, provide for any penalties if the respective targets are missed.

The draft provides for 187 billion RON (around 45 billion euros) in overall spending for next year and a 23.6 billion-RON budget deficit, i.e. 4.4% of the Gross Domestic Product (GDP), which is set to narrow to 3% of the GDP in 2012. This year’s budget deficit target was revised last month from 5.9% to 6.8%, following negotiations with the IMF, which resulted in a new economic forecast – the extension of recession instead of a return to growth.

The Finance Ministry sets the spending cut to 39 billion RON or 7.3% of GDP next year, and to 7.1% of GDP in 2012, after personnel spending reached 46.8 billion RON or 9.5% of GDP in 2009. In the first four months of this year, personnel spending in the general consolidated budget amounted to 16 billion RON, i.e. 3% of GDP.

The Finance Ministry anticipates a surplus for social security, unemployment, and health insurance budgets in 2011, while unemployment insurance will end the year with no deficit, according to a draft law that pre-establishes the main indicators of the budget structure over the next two years. Moreover, for local budgets, which were derailed in the first four months of this year, the Finance Ministry provides for a 1.78 billion-RON surplus in 2011.