Romania To Draw IMF Funds Under Follow-Up Deal If Recession Lingers

On March 31, the eastern European country ended a EUR20 billion multilateral financing agreement with the IMF, the EU and other lenders, and entered a follow-up deal for the next two years.

In its seventh and last review of Romania's initial loan agreement, the IMF estimates the country would post an economic growth of 1.5% in 2011 and of 4.5% in 2012.

However, under a stress scenario which involves reduced capital inflows and disappointing exports, Romanian economy would contract for the third consecutive year in 2011, IMF said.

The pessimistic projections indicate a decline of 0.5% this year, followed by growth of only 3.5% in 2012.

"If downside financing and growth risks materialize, the authorities might need to draw under the new arrangement," IMF said.

Under IMF's stress scenario, higher perceived risks would reduce foreign direct investment inflows and rollover rates on private sector external liabilities would drop below 100% as banks repatriate some resources and corporations find less access to external financing.

A weaker euro area recovery would also dampen exports, while the economic growth would fall by a cumulative 3 percentage points in 2011-2012, according to the report.

"Lower capital inflows would require additional external financing of EUR5 billion, which would be covered by disbursements from the Fund and the EU," IMF said.

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