The Romanian parliament cleared a draft law on Thursday nearly doubling state pensions in the next two years, in a move that threatens further loosening of fiscal policy.
The increase was proposed by the powerful leftist opposition, which has suffered a big drop in public support and threatened to topple the government unless the hike was approved.
The law envisions a 43 percent pension increase in 2008 and a 33 percent rise in 2009. The two hikes will cost the state 14.3 billion lei ($6.08 billion), according to finance ministry estimates.
"The hike is a populist measure which is economically impossible. Where are we going to get 7 billion lei?" said Ionut Dumitru, head of research at Raiffeisen Bank in Bucharest, referring to the cost of the law in the first year.
"We will probably see a rise in taxes somewhere," he said. Analysts have warned this year that Romania may loosen its fiscal targets because of political bickering among main parties and falling public support for the main government and opposition groupings.
Bucharest's centrist government has lost coalition partners throughout the year and now commands only 20 percent of seats in parliament. The increase comes despite warnings from analysts and international observers that Romania needs to tighten its purse strings in order to prevent a flare-up in inflation as the economy grows robustly.
Labour Minister Paul Pacuraru said earlier this month that a 50 percent rise in pensions would increase state spending by around 2.0 billion euros ($2.67 billion), or 2 percent of gross domestic product.
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