Ways to avoid an IMF loan due to wider deficit

The government yesterday made the fourth budget rectification this year, to secure funds for pensions and the salaries of some public institution employees, as government spending rose by over 37 percent in the first eight months of 2008, and the budget deficit could amount to as much as 3.2 percent of gross domestic product (GDP).

Prime Minister Calin Popescu Tariceanu yesterday said the Labor Ministry will have an added €301 million in December for child allowances, pensions for the disabled and farmers.

Analysts and government representatives interviewed by Business Standard indicated that, in spite of a loan from the European Investment Bank (EIB) worth €1 billion, of which €250 million are to be allocated this year and used to cover the budget deficit, Romania might still need a further loan from the IMF, due to the international crisis.

The financial turmoil has already affected the country, as increasingly more companies go bankrupt and their staff joins the unemployed, while other companies are restructuring and laying off employees, leading to significantly lower budget revenues.

The budget deficit will amount to 3.2 percent of GDP in 2008, according to an estimate by UniCredit Tiriac Bank. "It is rather difficult to foresee by how much the budget will widen beyond 3 percent, but the 2.3 percent target will definitely be exceeded. How much over 3 percent depends on how the government handles budget spending," said UniCredit Tiriac Bank Chief Economist, Rozalia Pal.

Business Standard