Floods could impact the budget deficit target

• The IMF seems willing to accept an increase of the budget deficit to 7% of the GDP, which would allow the Government to allocate over 200 million Euros to cover the damages caused by the floods

• Băsescu: "We have no resources to improve the situation caused by the floods"

The International Monetary Fund is willing to renegotiate the budget deficit target of 6.8% of the GDP that was agreed with the Romanian government for this year, following the damages caused by the floods, for which the state budget will need to pay out several tens of millions of Euros.

The Romanian representative with the IMF, Mihai Tănăsescu, said: "Everything is possible. It remains to see how much damage the floods caused. The IMF has understood that is a critical situation and I think that it will accept a greater budget deficit in its future discussions with the Government. We can"t fight nature!".

When asked how much of a hike of the budget deficit would the IMF accept, Mihai Tănăsescu implied that it could reach 7% of the GDP.

• The deficit target, revised in the first quarter

The new value of the budget would vertiginously approach the one in 2009, of 7.2% of the GDP and would allow our authorities to allocate over 200 million Euros for the recovery of the infrastructure destroyed by the floods.

If the IMF accepts the new budget deficit target, we would essentially see a second revision of the forecast, after it being set at 5.9% of the GDP in Q1, and at 6.8% of the GDP in Q2.

For that matter, after the raise of the VAT from 19% to 24%, the IMF has revised the inflation target from 3.5% to 7.9% for this year.

A mission of the IMF is set to arrive in Bucharest on July 26th, in Bucharest, to assess the performance of the Romanian economy, to discuss with the government the revision of the loan agreement, and the budget for 2010.

• Boc: The deficit target for Q3 2010 could be affected

The announcement that the damages caused by the floods could affect the budget deficit target for 2010 was made by the PM Emil Boc himself, on Tuesday, in the areas affected by the floods.

The PM has emphasized that the budget deficit target for Q3 could be affected after the local authorities of the counties hit by the floods (Botoşani, Suceava, Neamţ and Iaşi) will receive a derogation which would allow them to spend in Q3 the funds they will receive from the budget for Q4.

The minister of Transports, Radu Berceanu, recently said that the government can ask the IMF to raise the budget deficit, by invoking force majeure due to the floods.

"Because of this particular situation we have room for negotiation, to find a solution", said Berceanu, who estimated that a raise of the deficit target to 7% of the GDP would be acceptable to the IMF.

• Do the estimated damages match reality?

According to the Minister of Administration, Vasile Blaga, the losses caused by the floods amount to 0.6% of the GDP, namely 75 million Euros, after the initial estimates made last week.

The Romanian authorities are now trying to obtain the necessary funds to repair the damages from the EU Solidarity Fund and via donations from Romanian state owned companies.

But in order to obtain funding from the EU Solidarity Fund, prefectures need to speed up the appraisal of the damages and to draw up a report that is true to fact by July 15th, one without padded figures...