ING: The agreement with IMF is in danger unless there is a strong government and the deficit could be over 8.5%
Publish date: 16-10-2009The reform measures will be difficult to put into practice in a credible way if the government is not strong enough and the agreement with the IMF is threatened especially by the budgetary deficit which could reach at the end of the year at 8.5-9% of the GDP, the ING analysts estimate.
The IMF fixed target for budgetary deficit is 7.3% of the GDP for the end of this year, but the ING analysts estimate a level of 7.7% of the GDP and they do not exclude a bigger deficit.
«A budgetary deficit will make tough measures necessary to limit it in 2010 as Romania will have a weak coming back of the economy - with a possible extension of the recession, despite our provisions - and a stronger fiscal policy which would have a negative impact on the economic growth for a period of three to four years. From our point of view, the optimist scenario might be the delay of the fourth stage of IMF payment ( at the end of March 2010), the ING report says.
The analysts of the financial group estimate that any new government, after the approval of the censure motion will have a short lived life and do not exclude early parliamentary elections, after the presidential elections.
According to ING analysis, the present situation indicated the fact that the political instability of Romania could be prolonged. However, in the case where they could make a government very quickly, the markets could be calm but the probability of early parliamentary elections would make the meeting of targets more difficult.
The complicated political situation will put pressure on the leu and on interests, ING considered. " IMF resistence will have a temporary effect ( a stronger leu and higher interests) as the political battle influnces negatively the real economy, more than the present increase of risk premium ( for Romania)", the analysts explain.
« If the political instability goes on, Romania could separate from the region as regards economic growth and the evolution of the exchange rate. The probability of a new rating drop might increase" the report shows.
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