UPDATE 1-Romanian finance min sure IMF will OK deficit hike

BUCHAREST, Aug 5 (Reuters) - Romania's Finance Minister said on Wednesday he was 'convinced' the International Monetary Fund will allow the country to run a bigger budget deficit this year, as the economy could contract by up to 8.5 percent.

'In 2009, the deficit could reach 7 percent of GDP,' Gheorghe Pogea was quoted as saying by state news agency Agerpres, referring to the country's gross domestic product.

An IMF mission is in Bucharest until Aug. 10, reviewing the European Union member's progress in meeting conditions attached to a 20 billion euro aid deal secured in March.

The deal set a 2009 budget shortfall of 4.6 percent of GDP based on a forecast for the economy to shrink 4.1 percent.

Conditions have deteriorated sharply since the deal was agreed, however, as the global financial crisis slashed both demand and lending, and the contraction is now seen more than doubling.

'The global recession ... will lead to an economic contraction that may reach 8 to 8.5 percent, and the first impact will be a drop in public revenues,' Pogea told reporters after a meeting of the center-left government.

'As a result, we will discuss with the IMF about raising the deficit, and I am firmly convinced that they will accept, but at the same time, we must certainly enforce structural reforms that will ensure budget balance.'

This week, the IMF's mission chief said the Fund will be flexible with Bucharest. However, the government must enforce deep reforms of its public administration, which employs about a third of Romania's total workforce of around 5 million people and is seen as bloated and largely inefficient.

On Wednesday, Prime Minister Emil Boc said the cabinet will thin out the state sector by cutting or merging state agencies, which will lead to a little more than 9,000 job losses.

He also said Romania will stick to its calendar for IMF-prescribed public sector reforms. A single wage bill should be approved in October, while pension reform should occur by December at the latest.

'These are laws that will shake the Romanian public system to its core,' Boc said.

Source: forbes.com