Romania to widen 2014 budget deficit target on higher military spending

By bne IntelliNews April 29, 2014

Romania will widen the budget deficit target by 0.2% of GDP* [to 2.4% of GDP] this year to boost its military spending, PM Victor Ponta said as quoted by HotNews online news services.

Rising the defence spending is in line with the calendar agreed with NATO aimed at bringing it to 2% of GDP in 2017, he explained. Romania’s “financial partners” (meaning the IMF and the EU) have already agreed to the budget deficit widening, Ponta confirmed. The defence budget hike would be part of the June budget adjustment, he explained.

The supplementary spending was announced just after President Traian Basescu warned that Romania ought to take such steps in the context of regional developments. Romania cut its defence spending during the recession years from above 2% of GDP before the crisis, even if the country has to observe a 2.13% target as a NATO member, Ziarul Financiar daily commented.

PM Ponta mentioned that the money would be used for the military capacity enhancement by acquisitions mainly from local producers. Aircraft producers and repair companies Aerostar Bacau and IAR Brasov were reportedly informed earlier this month about the imminent rise in the volume of public orders, Ziarul Financiar daily reported.

Romania currently targets 2.2% of GDP budget deficit this year, down from 2.5% of GDP in 2012-2013, under the national (cash based) methodology. Under the ESA 95 methodology, Romania’s budget deficit narrowed to 2.3% of GDP in 2013 from 3% in 2012 and it will further decrease to 2% of GDP this year.

* PM Ponta mentioned both 0.2% of GDP and RON 700mn – even if RON 700mn accounts only for some 0.1% of this year’s GDP.

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