Romanian President Wants 2nd IMF Loan Tranche To Fund Budget Deficit

The President will meet the IMF mission to Bucharest Thursday at GMT0930.

Basescu said the second tranche might be used to finance the budget deficit, as well as for investments in healthcare and education.

According to the president, although the country’s initial economic contraction was estimated at 4%, the forecast currently points to a 8% GDP fall.

"Thus, we are much more affected than IMF had forecast," Basescu said.

A solution would be a cut in administration spending, by dismissing useless staff, as well as the cut in material expenses, according to the president.

Basescu added that, according to evaluations, the current account deficit will be at 5%-6% of the GDP at yearend, given the sharp fall in both exports and imports.

The government asked IMF to allow the use of the second tranche of the loan to finance the budget deficit, which might be revised to 8% of the GDP from the previously estimated 4.6% of the GDP, instead of using the funds to support the central bank’s monetary policies, as initially planned.

Government sources attending Wednesday’s talks said that IMF representatives might accept the request if the Romanian authorities observe certain conditions, like the cut in administrative and capital expenses, especially in the local public administration.

IMF also recommended the government to hike budget revenues by improving the collection of fees and taxes. At the same time, the salary and pensions law should be finalized by yearend.

An IMF mission arrived last week in Bucharest for the first evaluation of the EUR12.95 billion stand-by arrangement agreed in March.

Romania agreed with the IMF a EUR12.95 billion stand-by loan, as part of a EUR19.95 billion financial rescue package that also includes funds from the European Commission and other international institutions.

The first tranche, worth EUR5 billion, was released in May and entered the central bank’s reserve. The second tranche, worth around EUR1.9 billion, should be attracted on September 15, based on the results of the first evaluation and the economic performance in the first six months.