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October 25, 2021

PM: Gov’t to use EC loan for investments

Following the official approval of the intention letter by IMF on Monday, Romania will get a first instalment worth EUR 4.9 bln in the next days.

The first instalment from the loan granted by International Monetary Fund (IMF), amounting to EUR 5 bln., will add to the central bank foreign currency reserves in the nest 24 hours, and the remaining ones will be attracted in the next two years, at each six months, on the basis of the fulfilment of the terms required. On Monday, IMF Executive Board approved the standby agreement with Romania, over a time period of two years, providing for EUR 12.95 bln. The conclusion of the agreement with IMF enables Romania to have an immediate access to 4.37 bln. SDR (Special Drawing Rights), around EUR 4.9 bln. or USD 6.6 bln. The letter attached to the loan agreement shall be conveyed to the Romanian authorities and shall be submitted with the Parliament, most likely as a law draft.

On this occasion, PM Emil Boc specified yesterday, in Parliament, that the funds from the European Commission (EC) from the external loan contracted by Romania are meant to create jobs by supporting investments and they will not be allotted for salaries or pensions. Asked whether the money borrowed from the EU would not be used for salaries and pension, Boc said: “I repeat, it shall be used for investments. Today, the funds are used for investments, as provided in the state budget”.

The loan that EC granted Romania was a topic for discussion yesterday in Brussels, during Ecofin reunion of EU Finance Ministers, as officials from MFP said for Agerpres, the Romanian Finance Minister, Gheorghe Pogea participating in this reunion.

On this occasion, the Finance Ministers approved the external financing program for Romania: “The agreement was approved unanimously and it shall be conveyed to Bucharest under the form of a standby commitment. It is an objective meant to regain the investors confidence”, Pogea said.

Main objectives of the agreement: budgetary deficit, inflation and financial sector

The objectives of the agreement with IMF are the reduction of the budgetary deficit to less than 3 per cent of GDP in 2011, to maintain bank capitalization and liquidity in the financial market at a proper level, to reduce inflation to BNR target, to secure external funding to improve confidence. “The Romanian authorities are to be commended for using in due time the international support in order to have support to reduce high imbalances and vulnerabilities, accumulated in the past years of economic boom (…) Also, the excessive public expenditures resulted in a huge fiscal deficit, which destabilizes in the context of the current tightening of the lending terms”, John Lipsky, IMF deputy director general, said.

He specified that the authorities have launched a comprehensive program to adopt measures in relation to the current challenges, which are aimed at reversing tge worsening of the fiscal situation, by significant cuts in costs and by securing additional revenues. The IMF official mentioned that an action plan is implemented to maintain confidence in the banking system, which includes preventive recapitalization of banks, agreements for maintaining the exposure of the foreign banks in Romania and efforts to tighten the banking supervision.

Zero economic growth in 2010

Based on an IMF press release, Romania’s economy contracts by 4.1 per cent this year and it will have zero economic growth in 2010. For 2011, IMF forecasts an economic growth of five per cent. Internal demand shrinks by 8.2 per cent in 2009, by 2.7 per cent in 2010, but it will advance by 5.7 per cent in 2011, according to IMF. The Fund estimates that Romania’s GDP will amount to EUR 119.7 bln. this year, and to EUR 118.8 bln. in 2010. The unemployment rate will be 8.9 per cent in 2009, 9.7 per cent in 2010 and 7.7 per cent in 2011. FDI will account for 30.8 per cent of GDP in 2009, 29.9 per cent of GDP in 2010 and 31.9 per cent in 2009. Romania’s current account deficit shall reduce this year to 7.5 per cent of GDP, 6.5 per cent of GDP in 2010 and 6.2 per cent of GDP in 2011, according to FMI. The general consolidated budget advanced, after the first four months, to RON 9.4 bln., or 1.78 per cent of GDP from 1.5 per cent of GDP at the end of March, considering that in April the revenues scheduled were fully accomplished, officials told Mediafax. There are no forecasts available for the average exchange rate over 2009 – 2011, but regarding the yesterday exchange rate, it decreased, in the local inter-banking session, to RON 4.1730 – 4.1760 for EUR 1, an evolution in line with the other foreign currencies in the region, within a market that did not react to the approval by IMF of Romania’s agreement. BNR reference rate dropped by RON 0.0315, to RON 4.1605 for EUR 1, the lowest level since April 14.

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