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It seems that the Romanian economy’s hardships are far from over. Unemployment rose to a new record of 8.3% in February. The situation is not expected to ease: The government recently approved a reduction of 10,300 jobs in the railway sector and private-sector employers anticipate further payroll reductions, according to a survey by the National Institute of Statistics (NIS). Managers also expect further declines in the construction, retail and service sectors, according to the same survey.

 

 

Analysis and Forecast: Increasing Risk

 

The economic situation in Romania could well be worse than the government makes it out to be. As the European Commission pointed out, the budget does not contain much-needed measures for economic consolidation in 2011-2012. Prime Minister Emil Boc has even threatened to fire ministers who talk about extra revenue-generating proposals without consulting the cabinet first. The situation is so severe that the state cannot give grants or subsidies to prospective investors because it does not have the resources, Finance Minister Sebastian Vladescu said. To make matters worse, the government is starting to backtrack from some of its revenue-raising measures: PM Boc said the administration will postpone the enforcement of the “early profit tax, “ which requires companies to pay a quarterly tax on profit based on their previous year’s income beginning January 1, 2010.

 

Fiscal prudence is hardly evident in the budgetary data from the first two months of 2010: State revenues fell 3% and expenditures rose 5.8% year-on-year. President Traian Băsescu warned that the country may be forced to apply for another stabilization loan unless decisive steps are taken. The situation is increasingly starting to mirror the events of one year ago: Soon after the European Commission warned that Romania’s budget deficit may be larger than anticipated, the Mediafax news agency reported that a budget revision was in the works. The government’s record was further tarnished by the European Bank for Reconstruction and Development (EBRD), which issued a draft study saying Romania has not used its loan from the IMF, the EU and the World Bank efficiently.