Romania’s Financing Needs To Stay Extremely High – Analysts

"Policy tightening, slower lending growth and a lack of external financing will result in a sharp contraction of the current-account deficit in absolute terms in 2009-10, but the size of the annual financing requirement (current-account deficit plus principal repayments on medium- and long-term debt) will still be formidable. We assume that Romania will be able to meet its financing requirement in 2009, although medium- and long-term inflows, and FDI inflows, will be less than in 2008, and reserves will be run down. However, there is a sizeable risk that financing could fall short, and the authorities may have to seek balance-of-payments support from the IMF or the EU, or both,” Joan Hoey, senior analyst with The Economist Intelligence Unit, told MEDIAFAX.

Romanian President Traian Basescu said Tuesday that he is not in favor of Romania taking a loan from the International Monetary Fund, but from European Union institutions, adding he already told the European Commission that Romania plans to request a loan of EUR6-7 billion, under IMF supervision.

Also, Prime Minister Emil Boc said the government doesn’t rule out the possibility of an agreement with the IMF.

"We need to finance the budget deficit and there are two –three solutions: financing from the EU, the domestic market or the IMF. What I can say now, and I’m not saying we’ll certainly have an IMF agreement, is that I don’t rule out the possibility of talks, negotiations and the conclusion of an agreement with the IMF. We will decide which of these financing options works best for us,” Boc said Thursday on public television.

Standard&Poor’s analyst Marko Mrsnik drew attention, however, that any financing arrangement, regardless of where the money comes from, with strings attached and require full commitment by the government to honor the agreement.

"In general, there are various possibilities should a country run into such (financing –e.n.) difficulties or decide to acquire a buffer against such risks," Mrsnik explained.

Fitch Ratings director Andrew Colquhoun thinks the IMF and the EU could work together if Romania were to get a loan.

"I do not expect the EU would wish to provide substantial external liquidity support to Romania without the involvement of the IMF, as the IMF has extensive experience in devising appropriate policy packages," Colquhoun said.

Romania’s medium- and long-term external debt stood at EUR49.71 billion at the end of November 2008, up 29.2% compared to end December 2007.

The country’s public and public guaranteed external debt stood at EUR10.78 billion and accounted for 21.7% of the medium- and long-term external debt, compared to 26.5% at the end of 2007.

External debt without public guarantee totaled EUR33.06 billion, 32% higher than in December 2007.