IMF: 1.75 billion euros to finance budget gap

Approx. 1.75 billion euros, to be taken from the next two loans tranches from the International Monetary Fund (IMF) to Romania, will be used to directly finance Romania’s 2009 budget deficit, head of the IMF delegation to Bucharest Jeffrey Franks told a press conference on Monday.

The following two loan tranches from the IMF, worth 1.718 billion SDR (Special Drawing Rights, that is almost 1.9 billion euros) and 1.409 billion SDR respectively (approx. 1.5 billion euros), will be delivered in September and December.

Estimates placed Romania’s budget deficit at 7.3 percent of the GDP in 2009, said Jeffrey Franks. He also showed that the budget deficit could have in fact passed 8 percent at the end of 2009, but an agreement with the Romanian authorities was reached to make certain fiscal corrections, so as to counterbalance a higher deficit.

Franks explained that the Bucharest authorities need to take fiscal adjustment measures representing 0.8 percent of the GDP, so that the budget deficit may stand at 7.3 percent of the GDP.

When negotiating the arrangement with Romania back in March, the IMF experts anticipated a budget gap at 4.6 percent of the GDP.

The head of the IMF mission said that he was to propose the Fund’s Board of Directors some of the money from the next two tranches directly go to financing the budget deficit, with the Ministry of Public Finance (IMF) to identify and access, in the foreign market, the remaining funding needed to cover the larger deficit.

Jeffrey Franks also added that the budget implementation will be also backed by the future instalments of the loans extended by the other partners – the European Union and the World Bank.

According to the IMF official, additional adjustment efforts worth 2-2.5 percent of the GDP will be required, so that the budget deficit to stay at below 6 percent of the GDP.

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