Companies will have to pay/refinance a debt of EUR 5.2 bln, followed by banks with EUR 4.7 bln and the state with EUR 0.9 bln, a Fund’s report shows. Political turmoil might freeze the current agreement, analysts warn.
Romania’s financial needs will stand at EUR 38 bln next year, up by approximately EUR 700,000 compared to 2010 but down by approximately EUR 11 bln compared to the peak level reported in 2009, the IMF estimates in the report authored following its fifth evaluation of the stand-by agreement, being quoted by ‘Ziarul Financiar’ daily. Approximately EUR 19 bln will be needed in order to cover short-term debts falling due, of which EUR 9.6 bln will be needed by banks and only EUR 3.9 bln by the state. Apart from that, medium and long-term debts of EUR 10.8 bln will reach maturity next year. On this segment companies will have to pay/refinance EUR 5.2 bln, followed by banks with EUR 4.7 bln and the state with EUR 0.9 bln. Apart from that, the IMF estimates that approximately EUR 7 bln will be needed to finance the current account deficit. Likewise, Romania will have to cover net capital outflows of approximately EUR 1.6 bln, including investments in stocks, derivatives and other instruments.
ANALYSTS WORRIED BY STATE DEBT
“EUR 38 bln is not much. I’m not worried by private debt owed by banks and local company branches. They move their money according to their necessities. It’s not worrying despite being short-term debt. The reasons for concern strictly have to do with state debt, a debt whose growth rhythm is on the rise, and budget revenues cannot grow similarly against the backdrop of a stagnating economy. An economic growth of 1 per cent is estimated for 2011. Financing the state debt in 2011 remains in doubt,” financial analyst Aurelian Dochia commented. When it comes to sources of financing, the IMF takes into account EUR 5.4 bln in FDI and capital inflows, including from the EU (only EUR 0.4 bln).
Likewise, short-term debts of EUR 18.6 bln will be refinanced and medium and long-term debts of EUR 12.4 bln, of which EUR 6.8 bln for banks, will be contracted. Next year Romania should obtain another EUR 1.5 bln from the external financing programme reached with the IMF, EU and World Bank. The IMF experts warn that careful management will be needed in order to ensure a “smooth” financing of the budget deficit against the backdrop in which the interest rate margin that is connected to the country risk level remains high.
The Fund estimates that the Finance Ministry will be able to restore the liquidity reserves it has consumed in recent months in the interest rate war with local banks over the EU funds and the external financing programme that will be launched this autumn, one whose upper ceiling stands at EUR 7 bln per three years. According to the report, as part of this program the Finance Ministry will launch bonds with a maturity of five years. Being the financier with the greatest exposure on Romania, the IMF expects the Romanian officials to have a solid repayment capacity. Next year the loans that Romania contracted from the IMF will end up representing a peak of almost 34 per cent of forex reserves. In 2013-2014 the payments falling due will represent 12.8 – 14.1 per cent of reserves, a level considered to be “manageable.”
AGREEMENT WITH ROMANIA COULD BE FROZEN IN Q4
The IMF could freeze its agreement with Romania in Q4 because of the political tensions, the Bank of America – Merrill Lynch experts warn, Money.ro informs. In the American economists’ view, the current government is losing support both in Parliament and among the population. The analysts mention that PSD, the main opposition party, plans to file a no-confidence vote against the government and to impeach the president. The Bank of America – Merrill Lynch experts expect prolonged political uncertainties even if the no-confidence will fail. And their first effect would be a delay in executing the agreement with the IMF and the European Union. According to the Bank of America estimates, Romania will slightly surpass this year’s budget deficit target of 6.8 per cent of GDP. Moreover, the 4.4 per cent target for 2011 is considered ambitious.