Tuesday, July 28, 2009

Romania to ask IMF for more leniency on budget gap

By Radu Marinas

BUCHAREST, July 27 (Reuters) - Romania will ask the International Monetary Fund to allow it to raise its budget deficit goal this year, and thus prevent the need for further austerity measures that could stifle the struggling emerging economy.

Mirroring Hungary, now facing the worst downturn in two decades as a collapse in demand in western Europe cuts jobs and incomes, the new EU member enforced drastic cuts as part of a 20-billion-euro foreign aid package it secured in March.

But first-quarter growth data showing a worse than expected contraction at 6.2 percent, have prompted officials to say that Romania needs increased funding to finance infrastructure investment and fight the world financial woes more resolutely.

A senior official told Reuters his centre-left cabinet would try to persuade the Fund during the first review of the IMF-led loan from July 29 to Aug. 10, to accept a target of 5-5.5 percent of gross domestic product against 4.6 percent.

In May, under a similar agreement with the IMF and the European Union, Hungary was allowed to hike its deficit ceiling to 3.9 percent of GDP from a previous 2.9 percent target.

So far, the deficit figure envisaged is bigger than 5 percent. It could range from 5 to 5.5 percent of GDP,' a senior government official told Reuters.

The official said a cabinet decision on the final level has yet to be taken: 'A lot will depend on the level of budget revenues for July and these figures are due in early August.'

Romania needs the increased funding to fund badly-needed road, rail and energy projects, the official added, echoing comments made earlier in July by government officials.'There's a need for a higher gap due mainly because of worse than expected contraction for the first quarter and expectations of further contraction in the second quarter,' the official said.

The IMF declined to comment, but bank analysts said Romania's argument looks sound, given that the rise in the deficit is due to a deeper-than-expected recession and not lack of fiscal discipline. They said forcing further cuts in spending at this stage might only drive the economy deeper into crisis.'It was expected that the government would ask for a wider gap ... Figures seem realistic as there have been no chances to attain the current target given economic recession,' said Rozalia Pal of UniCredit Tiriac Bank in Bucharest.'I do not expect any tax hikes ... a certain flexibility is to be expected from the Fund ... it seems that the IMF will show some openess as in the case of Hungary's (deficit).'

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