Inflationary Spike Adds to Romania's Woes

Inflation rose by 3.55 per cent last month in Romania, up from 3.45 per cent in September, the highest rate since May, according to official data.

Inflation rose mainly because of higher heating bills, a result of the government's decision to end heating bill subsidies from October 1 as part of its IMF-led aid deal.

Only the poorest families are now still protected by subsidies, those on incomes of less than 850 lei [210 euro] per member per month.

Many people are now trying to figure out where they can cut expenses, in order to meet rising monthly bills.

“The situation is extremely difficult, especially now that winter is coming and heating bills become expensive," says teacher Ion Popescu, 43. "For the first time I'm worried I will not be able to pay my bills."

Experts say even tougher times are to come. “Despite the government’s optimism, Romania will not exit recession soon," says economic analyst Ilie Serbanescu. 

"There were some positive economic improvements in recent months, but they have come at the cost of reducing investments and public spending.”

Bucharest is to continue its harsh cuts in public spending, despite the impact of cuts on growth.

The IMF recently cut Romania's growth forecast for next year to around 2.1 per cent of GDP. The country has experienced a very slow economic recovery this year with growth estimated for this year at 1.5 per cent of GDP.

But Romania is dependent on a 20-billion-euro rescue package from the IMF, the European Union and the World Bank. It obtained the loan in May 2009 in exchange for agreeing to push through austerity measures aimed at taming the country’s yawning deficit.

Last July Emil Boc's government cut civil servants' wages by 25 per cent, while thousands of state jobs were axed and VAT was increased by 5 per cent to 24 per cent.

The government says it had no other option to keep the economy afloat, but critics say that while other European countries are trying to find alternative sources to cover their deficits, Romania is relying exclusively on IMF help.