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ING: IMF may demand new measures for the correction of budget deficit

IMF may request the adoption of new correction measures for the budget deficit at the next mission visit in Romania at the end of October, ING Bank Romania analysts say.

'The probability of such an evolution is high enough as the present deficit targets established by iMF are based on an economic contraction of only 0.5%.Normally, any revision of estimates on economic evolution should be followed by the revision of budget deficit provisions. However, official declarations show that the nominal budget deficit target will remain constant,' a report of ING Bank analysts shows.

Economists point out that the budget deficit target established for the first semester was reached by increasing arrears.'Romanian authorities have not reached any targets about arrears. That means they have not reached any budget deficit target,' the report says.According to provisional data published on Wednesday, the execution of the general consolidated budget in the first 6 months of the year ended with an estimated deficit of 18.07 billion lei, below the deficit target limit – 18.2 billion lei, included in the additional letter to the Stand-by Accord concluded with IMF.

At the same time the Ministry of Public Finance announced it would request IMF a new exemption from the obligation of reducing arrears, as it has not been able to observe the established target in the first semester in the conditions in which it has never succeeded to be within the quarterly values assumed.On the other hand, ING analysts comment on the Finance Ministry's attempt to attract 1.213 billion euro from the domestic market at an interest rate of 4.9% per year.

'As a result of an auction, BNR will probably reduce the rate of minimum compulsory reserves for foreign exchange from 25% to 20% on August 4 and we do not exclude a new euro issue before November when another issue of 1.4 billion euro matures,' the bank analysts say.They say that paying 4.9% for 1 euro is the equivalent of a 10% profit granted to attract financing in lei with protection against currency risk.

'If euro appreciates by over 2.5% over July 2010-July 2011, loans in lei with an interest rate of 7.5% would be cheaper than financing in euro at a 4.9% profit,' the report shows.At the same time analysts consider 'strange' that such a high amount was attracted at a profit of 4.9%.'The currency will be probably exchanged at BNR and since market liquidity will be added interest rates in lei will drop on a short run. That may improve the demand for state bonds on a short run. However we maintain the idea that bond profitability will grow by 7% in the primary market considering inflation and fiscal risks next to a possible political tension,' ING analysts added.

Sursa: http://www.actmedia.eu

Tags: deficit euro target analysts ing budget bnr

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