Next year''s budget deficit and the destination of the privatisation funds could be the main rupture points in the new round of talks with the IMF, which therefore may end up with this type of monitoring of the government''s macroeconomic policies being dropped once and for all.
The IMF experts'' insisting on building a perfectly balanced budget, if not one with a surplus, as well as their refusal to accept any use for the privatisation money other than to curb public debt, are becoming harder and harder to take, considering the many needs for public funding, as well as the little effectiveness of the budgetary lever in controlling the foreign deficit.
Romania''s public debt as a share of the Gross Domestic Product has been dwindling over the last six years, coming close to 20%, whereas the cap in the EU countries is 60% of GDP.
The domestic public debt stock does not exceed 3.9bn euros, with spending on interests put at some 320 million euros for this year. The public and publicly secured debt amounted to 11.3bn euros at the end of August, while the foreign debt not publicly secured amounted to 10bn euros.
Even though Finance Ministry projections have the domestic public debt go up to 7.6bn euros in 2009, the share of interest spending in the GDP should go down slightly from 0.4% to 0.32% in 2009.
However, the IMF is still not persuaded by the Finance Ministry''s project to list as "healthy budget deficit" the use of privatisation money for investments in infrastructure or for the pension system reform. Considering the several billion euros in privatisation revenues that will come in this year and the next, Romania would end up slashing its public debt, despite badly needing the money.
According to the note explaining the 2006 budget draft, the privatisation revenues will not be used to directly fund the budget deficit, and their destination will be set by Government decisions. They will most likely go to infrastructure projects, as well as the budget deficit created by the introduction of the pillar II of the privately managed pension system. The partial use of such funds for the restructuring of the foreign public debt comes third on the list.
The budget draft was presented on Thursday to the IMF experts, who are to study it in the next few days.
As for the Fund''s request for the authorities to continue to curb the budget deficit as a solution to offset the surge of the foreign deficit, the experience of the last two years has shown that the relation between these two elements is getting weaker by the day, given that imports and foreign loans are mainly connected with the private sector.
A relevant example in this regard is Bulgaria''s, which, although successfully registering budgetary surplus, is still seeing its current account deficit tend towards 13% of its GDP.
"The Government''s capability to boost budgetary revenues remains essential, and IMF''s position is justified from this point of view. Romania has the lowest rate of budgetary spending in the GDP in Europe, which is abnormal considering the need for infrastructure investments," Radu Craciun, ABN Amro head analyst comments, saying steps to maximise revenue proposed by the Finance Ministry thus far are not convincing enough.
Under the circumstances, Romania may come to terminate the agreement with the IMF once and for all. Finance Minister Sebastian Vladescu said the Government was ready to set its own macroeconomic policies and back them before Brussels.
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