IMF Negotiations: Budget Figures No Longer Valid!

• Following negotiations, economic recession forecast at 4% in 2009, up from 2.5% Gov"t estimate

• Liviu Voinea, GEA: "The budget deficit could reach 7% of the GDP in 2009"

• Budget collection down by 20 billion RON from estimated target

• Daniel Daianu, MEP: "Budget deficit target revision was unavoidable"

Andreea ArĂboaei

Negotiations between the Romanian Government and the International Monetary Fund (IMF) led to significant changes in the main indicators of the Romanian economy, on the count that Romania will be severely impacted by the international crisis. The situation prompted the IMF to conclude that Romania will have a budget deficit of 4.6% of the GDP in 2009, based on an economic recession of 4%, as opposed to the Government"s forecast of an economic growth of 2.5% and a budget deficit of 2% of the GDP.

"The deficit forecast for this year considers the probable budget collection level during a period of recession, and not of economic growth. That will cause a reduction of budget revenues, compared to the Government target," Daniel Daianu MEP told BURSA. He added that the revision of the 2% budget deficit target was unavoidable. According to him, the 2% target was very tight and would not have left any manoeuvring space within the budget.

Liviu Voinea, President of the Applied Economics Group (GEA), told BURSA that, following the negotiations, the Romanian authorities had admitted that budget revenues would be smaller than forecast. "Anyway, the budget revenues will be much smaller than the target set during negotiations. The budget deficit can reach 7% of the GDP," he added. In order to balance the budget in the new economic context, the authorities will need to perform a budget rectification, Voinea believes. He repeated that the budget of the Ministry of Labour would have to be increased, as the number of unemployed persons is likely to largely exceed the initial estimate of 525,000.

Romania and the IMF have agreed on a budget deficit target of 4.6% of the Gross Domestic Product (GDP) in 2009, within a loan package worth 20 billion EUR, according to sources quoted by NewsIn. The IMF forecast appears to have been accepted by the European Commission, which will prompt the Romanian Government to rework the budget for this year. Under these circumstances, the initial calculation points to a 20 billion RON regress in budget collections, compared to the current estimate of 193 billion RON (equal to 33.5% of the GDP) to 173 billion RON. Upon making the current budget, the Government considered budget expenditures of 205.57 billion RON (or 35.5% of the GDP) and an economic growth of 2.5% for this year.

Representatives of the International Monetary Fund (IMF), the European Commission (EC) and the World Bank (WB) will have a joint meeting today. The IMF delegation is in Bucharest on 11-25 March to discuss a financing package for Romania. According to the latest information, the target value of the loan is 20 billion EUR, of which 13 billion EUR from the IMF, 5 billion EUR from the European Commission and 2 billion EUR from the WB, EIB or EBRD.