Tuesday, June 8, 2010

Romania Needs to Borrow EU3 Billion in 2010, Boc Says

By Irina Savu

June 7 (Bloomberg) -- Romania’s government, which faces a no-confidence vote over planned austerity measures, must borrow as much as 3 billion euros ($3.6 billion) this year even if it receives more bailout payments, Prime MinisterEmil Boc said.

Boc reiterated today in Parliament, where he presented two bills on state wage and pension reductions, that the government must cut spending to meet an International Monetary Fund and European Commission-mandated budget deficit target, or face the possibility of being unable to pay benefits by year-end.

Romania stands to receive 2.5 billion euros from the IMF and 2.3 billion euros from the European Commission if it meets a deficit target of 6.8 percent of gross domestic product, Boc said. Additional borrowing would be domestic and international, he said. The country may also benefit from 4.5 billion euros in foreign direct investments this year, according to Boc.

“The world has changed and investors from abroad no longer finance deficits, while domestic lenders are close to the 25 percent limit of how much they can lend to the state, they are now at 20 percent exposure,” Boc said.

The nation’s economic contraction slowed to an annual 2.6 percent in the first quarter from 6.5 percent in the prior period as industry and export growth partly offset plunging construction and consumption. The government and the IMF predict the economy will shrink as much as 0.5 percent this year and return to growth in 2011

Boc also said today the economy, mired in the worst recession in 60 years, will probably post “slightly negative growth,” while final consumption will probably drop about 2 percent this year.

To contact the reporter on this story: Irina Savu in Bucharest atisavu@bloomberg.net.

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