The IMF could let Romania go with a 4% budget gap for 2009, ING analysts deem

The International Monetary Fund (IMF) could accept a budget deficit of around 4 percent of the gross domestic product (GDP) for 2009 in Romania's case during negotiations for a loan, consider analysts of lender ING.

However, the IMF will not approve of a public deficit larger than 5 percent of the GDP because this would be hard to finance and would fail to bring any adjustment on last year.

"We believe the IMF is aware of the need for a gradual narrowing of the budget gap to below 3 percent of the GDP. Therefore it is possible for the fund to accept a larger deficit for this year than the one stipulated in the Maastricht Treaty," the ING Bank report shows.

ING will revise downwards its estimate for the budget gap this year if an accord is signed with the IMF, from 7.3 percent of the GDP to 4 percent, declared for NewsIn Nicolae Alexandru Chidesciuc, senior economist with ING Bank Romania.

The lender's analysts actually say the provisions of a potential deal with the IMF cannot be bad for the Romanian economy given that the budget gap had already reached a level difficult to finance.

The current account deficit to adjust to 5.9 percent of GDP in 2009 while the leu idles against the euro

ING analysts see the current account gap at 5.9 percent of the GDP in 2009, as imports are expected to plunge by 50 percent and exports to drop 40 percent.

The external deficit is anticipated to reach 2.8 percent of the GDP in 2010.

However, the same analysts say a loan from the IMF will not push up the leu against the euro, as the local currency has not depreciated that much yet, as was the case of other currencies in the region.

ING sees the exchange rate at 4.35 lei per euro withing a month, an estimate revised upwards in the bank's latest report. The leu will continue on a downward slope to 4.7 at the end of September but will sprint to 4.4 at year-end.

An accord with the IMF will not impose the central lender (BNR) to slash minimum mandatory reserves, analyst say, but BNR will reduce them at the next monetary policy session at the end of the month to encourage banking transactions and to hike liquidity on the market.

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