ING: there is no guarantee that Romania will receive the third tranche easily
The IMF’s decision to initiate the second review should calm the local markets in the short term as fears about delays in disbursements would lead to an increase in the risk premium for Romania and growing pressures for leu weakening, ING’s senior economist Nicolaie Alexandru Chidesciuc said.
“Jeffrey Franks said that successful completion of the second review will require a broad-based political commitment to approve a 2010 budget with a budget deficit no higher than 5.9% of GDP”. Nevertheless, although we are in October 2009, there is no budget approved for 2010 and this is set to persist until a new government is formed; only afterwards will the new budget should be submitted for parliament’s approval”, ING’s economist said.
For this year, IMF’s budget gap target is around 7.3% of GDP, but ING analysts see a deficit of 7.7% and don’t rule out a wider deepening. Jan-Sep data indicates a budget deficit of 5% of GDP, according to minister of Finance, Gheorghe Pogea. For 2010, IMF agreed on a reduction of the gap to 5.9% of GDP.
Therefore, even if the IMF comes to Romania for the second review, there is no guarantee that Romania will receive the third tranche easily. For comparison, when the government collapsed in Latvia in February 2009 the IMF delayed the disbursement of a tranche from March until August. The money came after additional austerity measures were passed for the 2010 budget. So, even back then, the IMF strongly emphasized 2010 budget plans. At the same time, the IMF could adopt a softer approach on Romania again”, said Nicolae Alexandru Chidesciuc.
“Jeffrey Franks said that successful completion of the second review will require a broad-based political commitment to approve a 2010 budget with a budget deficit no higher than 5.9% of GDP”. Nevertheless, although we are in October 2009, there is no budget approved for 2010 and this is set to persist until a new government is formed; only afterwards will the new budget should be submitted for parliament’s approval”, ING’s economist said.
For this year, IMF’s budget gap target is around 7.3% of GDP, but ING analysts see a deficit of 7.7% and don’t rule out a wider deepening. Jan-Sep data indicates a budget deficit of 5% of GDP, according to minister of Finance, Gheorghe Pogea. For 2010, IMF agreed on a reduction of the gap to 5.9% of GDP.
Therefore, even if the IMF comes to Romania for the second review, there is no guarantee that Romania will receive the third tranche easily. For comparison, when the government collapsed in Latvia in February 2009 the IMF delayed the disbursement of a tranche from March until August. The money came after additional austerity measures were passed for the 2010 budget. So, even back then, the IMF strongly emphasized 2010 budget plans. At the same time, the IMF could adopt a softer approach on Romania again”, said Nicolae Alexandru Chidesciuc.