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Memorandum with IMF: Public-sector employees' salaries could increase on certain conditions in 2012

The Romanian authorities could adopt salary increases over 2012, on condition that progress is made concerning the reduction in the number of employees, according to the Government's letter of intent with the International Monetary Fund (IMF) released on Wednesday, October 5, by the international financial institution.

'The ambitious personnel reductions carried out in the public sector have created a fiscal space for a come back of salaries to the level before the 25 percent cut. The salary cut implemented in 2010 and the significant reduction in the number of employees in the public sector allowed a 15 percent salary increase. Over 2011, the number of public-sector employees continued to decrease - faster than the initial estimations - making space for the full salary recovery by the end of 2012. The moment and the percentage of the salaries' increase will be conditioned by new progress concerning the reduction in the number of employees in the public sector aimed at the reduction in the salary expenditure to 7.2 percent of the GDP from 7.5 percent in 2011 and from 9.5 percent in 2009,' the Memorandum with the IMF shows.

According to the fiscal-budget strategy for 2012-2014 adopted by the Government in August, the personnel expenditure will gradually decrease as against the gross domestic product. Finance Minister Gheorghe Ialomitianu announced at that time that the personnel expenditure would stand at 7.2 percent of the GDP in 2012, at 7.08 percent in 2013 and at 6.79 percent in 2014.

Romania, vulnerable to banking sector uncertainties

Romania is vulnerable both to a decline in demand for its exports and to financial market uncertainties, particularly from Greece, which could prompt capital outflows or spill over into the Romanian financial system, reads an International Monetary Fund (IMF) report of October 2011 posted on the IMF website on Thursday.

'Increased turbulence in world markets and signs of lower growth elsewhere in Europe have sharply increased downside risks. Romania is vulnerable both to a decline in demand for its exports and to financial market uncertainties, particularly from Greece, which could prompt capital outflows or spill over into the Romanian financial system. Strong capital buffers in banks, tight banking supervision, and healthy BNR reserves provide some cushion against these risks. Domestic political tensions and looming elections could also lead to policy reversals, dampening confidence. On the upside, more rapid implementation of structural reforms and faster absorption of EU-funded projects could catalyse faster economic growth and stronger capital inflows,' the document says.

The document also says that Romania's growth is expected to reach 1.5 percent in 2011, initially led by exports, with domestic demand recovering gradually in the second half of the year, reflecting good agricultural output and a recovery in the labour market.

In 2012, growth is expected to accelerate to 3.5-4 percent in 2012, with the recovery shifting from external to domestic demand as consumption recovers and investment increases with rising EU funds absorption.

For 2011, the Romanian authorities are on track to meet the cash fiscal deficit target of 4.4 percent of Gross Domestic Product (GDP). For 2012, the authorities maintain their commitment to bring down the deficit to less than 3 percent of GDP.

Inflation dropped sharply in June-July, but is still expected to remain above the central bank's inflation target (3 percent ± 1 percentage point) in 2011 before returning to the target range in 2012.Strong export performance is expected to stabilise the current account deficit below 5 percent in 2011-2012.

The report released by the IMF was drawn up after a second review under a stand-by arrangement between Romania and the IMF that was conducted July 20 - August 1 in Bucharest. The review mission also included officials of the European Commission and the World Bank.The next review mission is expected in Romania late this month.The ongoing stand-by arrangement is of a precautionary type, worth SDR 3.1 billion. It started on March 31, 2011 and its value is 300 percent Romania's IMF quota.

(Please find full text of this report :http://www.imf.org/external/pubs/cat/longres.aspx?sk=25274.0)

Sursa: http://www.actmedia.eu

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