ROMANIA WEEKLY UPDATE
The World Bank Office, Romania
Wednesday, October 29, 2003
The material published in this newsletter is compiled by the World Bank's Bucharest office and staff in Washington, and on the basis of publicly available information. It does not
represent the opinion of the World Bank or any other official body. No responsibility for factual accuracy can be taken
Constitution revision
The revision of the Constitution was approved by 89.7
percent of the electorate who participated in the
referendum held on October 18/19, according to the
data centralized at the Central Electoral Bureau (BEC)
and quoted by public sources. The participation rate
was 55.7 percent of the number of persons registered
on the electorate lists. The new Constitution came into
force on October 29, 2003.
Relation with the EU
PM Adrian Nastase sent a letter to Romano Prodi, the
Chairman of the European Commission, informing on
the Government’s additional commitments to be
accomplished before the release of the annual EU
Progress Report for Romania. A main commitment
was to identify ways to cut down the payment arrears.
According to the Finance Minister, Mihai Tanasescu,
the other three additional commitments were the
finalization
of
the
Siderurgica
Hunedoara
privatization, the approval of the national companies’
budgets for 2004, and the approval of the state budget
for 2004.
Privatisation of Siderurgica Hunedoara
The privatization contracts for Siderurgica Hunedoara
steel maker and Petrotub pipe maker are to be signed
next week with LNM Ispat, according to Ovidiu
Musetescu, Head of the Privatization Agency
(APAPS). The foreign investor would purchase some
81 percent of Siderurgica’s shares and 70 percent of
Petrotub’s shares. The privatization process might
imply significant layoffs, as LMN intends to cut the
number of employees by some 4,000, from 9,400
currently, for the two companies.
2004 budget law and underlying pre-requisites
The Parliament will start debating the 2004 State
Budget Law and Social Security Law on November
17. Underlying assumptions under the draft new
budget are presented in the comparative table below,
suggesting at the same time that, in 2004, economic
growth will be investment and exports driven.
Real % growth rates , y/y
2002
Gross Domestic Product
Domestic Demand
Households
Public Administration
Gross Fix Capital Formation
Change in Stocks 1
Export Goods and Services
Import Goods and Services
4.9
3.9
3.0
2.1
8.3
0.0
16.9
12.1
1)
2003 2004
projection
4.8
5.5
5.1
5.5
3.8
3.7
2.0
2.0
10.5 13
0.2
0.0
9.6
8.2
9.9
8.0
contribution to GDP growth
Industrial production growth is projected at 5.5% in
2004, as compared to a projected 5.2% in 2003. The
disinflation process will continue, bringing the 2004
end of year inflation to 9%, as compared to a projected
14% in 2003. The main disinflation pre-requisites are
the implementation of enterprise restructuring and
privatization programs, the reduction of payment
arrears and the cooperation of all social partners to
support prudent wage policies. The exchange rate
regime will continue to rely on a managed float and a
moderate real appreciation of the national currency vs.
the 40/60 US$/Euro currency basket. The CA deficit is
expected to deepen (Euro –2.4 bn) in 2004, and be
supported by an increased positive balance of current
transfers from abroad.
(in million Euro)
Current
Account
Balance
Export
Goods
and
Services
Import goods and Services
2002
- 1662
2003
-2050
2004
-2360
17135
18535
20115
19927
21615
23505
Other assumptions for 2004 are a 5.4% increase in
labor productivity, a 0.5% increase in the number of
employees and an unemployment rate (ILO
methodology) of 7.6% ( down from 7.9% in 2003).
The consolidated budget (CB) deficit was targeted at
3% of the GDP , up 0.3% as compared to 2003 deficit
of 2.65%. The two tables bellow are presenting the
structure of the consolidated budget revenues and
expenses.
Revenues (CB)
as % of GDP
Total, ow:
Fiscal revenues
Direct taxes
Tax on profit
Tax on income
Social
Security
Contrib.
Indirect taxes
Value Added Tax
Excises
Customs Duties
Non-fiscal revenues
Capital Revenues
2003
Program
30.4
28.8
16.6
2.2
3.0
10.4 1
2004
Proposal
30.1
28.6
16.4
2.3
3.0
10.0
12.2
7.4
3.0
0.7
1.6
0.1
12.2
7.3
3.2
0.6
1.4
0.1
1) Including recovery of arrears, re-classified from non-fiscal
revenues
Expenditures
(CB)
Total , ow:
Wage and
salaries
Material and
operating
expenditures
Interest
Subsidies,
premia,
transfers
Reserves
Capital
expenditures
Lending
Program
2003
Proposal
2004
as % of GDP
Program Proposal
2003
2004
as % of total
expenditure
33.1
33.1
100
100
5.0
5.0
15.2
15.0
7.1
6.5
21.4
19.7
2.4
2.2
7.1
6.6
14.7
15.6
44.4
47.3
0.1
0.1
0.2
0.2
3.7
3.6
11.3
10.9
0.1
0.1
0.4
0.3
Additional details are available at www.mfinante.ro ,
the web site of the Ministry of Public Finance