27th Sep 2023

Romania reaches out for new 'precautionary' loan

  • Mr Basescu says the country risks failing on planned austerity measures without a further IMF agreement (Photo: Romania Libera)

Romania is about to sign a second, "precautionary" agreement with the EU and the International Monetary Fund worth €5 billion, with a first aid package agreed in 2009 set to run out in May, the country's president said on Sunday (6 February).

"The agreement is necessary because the risks in the region are still high," President Traian Basescu said in a televised address from the Cotroceni palace.

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"There's also a political risk in Romania if we consider the elections and that's why I insisted that this agreement be for two years," he explained, adding that the deal is likely to be signed in March.

Under the new agreement, the IMF will earmark €3.6 billion and the EU €1.4 billion in case of an emergency, he said.

Unlike the €20 billion loan contracted in 2009 as recession hit the country, this "precautionary" agreement will not hand out money, but serve as a safety net to reassure investors that austerity measures will remain in place despite campaigning ahead of general elections next year. Mr Basescu insisted that the economy is recovering speedily and that the last payment from the IMF - worth around €1 billion - is not needed anymore.

"Out of the last two payments we will only take the EU one, which is necessary to cover the budget deficit," he said.

Mr Basescu said the government will focus on investments in four key areas: transport infrastructure, energy plants, IT and attracting more EU funds. Currently, the country's economy is still in EU's second worst recession after Greece.

The budget deficit widened to 7.2 percent of GDP in 2009 before narrowing last year to 6.5 percent of GDP last year.

Strikes and public disgruntlement with the government's policies are a regular phenomenon, especially as public payrolls have been cut by 25 percent and VAT increased by 5 points to 24 percent.

A meeting of IMF officials and the country's leading bankers is scheduled for Monday (7 February), two days ahead of the last evaluation report on the 2009 loan.

Meanwhile, in Greece, EU and IMF officials are kicking off an inspection visit aimed at giving a green light to a further payment of €15 billion. Athens has also cut public sector wages, frozen pensions and raised taxes as part of the €110 billion euro bailout agreed last year.

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