Romania can choose: an IMF loan or state bonds

The government expects Romania’s economy to rise 2.5 percent, and foresees no decline in tax collection. Thus, the budget announced last week by Prime Minister Emil Boc will be confirmed in three months. On the other hand, the International Monetary Fund (IMF) forecasts that Romania will slide into recession, in which case the country will need immediate financing to cover deficits.

Although government and IMF officials did not provide details referring to the possibility of a loan, the Governor of the National Bank of Romania (BNR), Mugur Isarescu, admitted that talks regarding this matter do exist. BNR hopes for a smooth landing, with 2.2-2.3 percent economic growth, but does not rule out the risk of recession, while IMF sees a one percent decline in gross domestic product (GDP) this year, without excluding a scenario of growth.

Regarding the interest rates of an IMF loan, analysts interviewed by Business Standard forward figures between 3-7 percent annually, depending on the borrowed amount, €7 billion or more.

“If we took out a loan on international markets, I do not think we would benefit from an interest below 10-12 percent. If we took out a loan from IMF, the interest rate would be lower, at least half this level,” the President of the Group of Applied Economics (GEA), Liviu Voinea, said.

Beside the low interest, the advantage of an IMF loan is that Romania would be able to borrow more easily from other lenders as well. The downside is that the state budget and the fiscal policy will have to comply with the constraints imposed by the fund. The alternative is that the government tries to borrow internally, but is it unlikely it should find sufficient resources.

“I believe that an internal loan could be one of the first ways of financing, the most at hand. Moreover, it would give the impression that individuals contribute to the overcoming of the crisis. In our case, mobilizing local resources will not be sufficient, so we will need foreign financing, and it should come from a variety of sources,” said the Country Managing Partner of the PricewaterhouseCoopers Romania consulting company, Vasile Iuga. He further stressed that Romania should continue to focus on attracting foreign investments. Financial Advisor Bogdan Baltazar said that the least expensive option is an IMF loan. “There is also the possibility of an internal loan, through state bonds. These are a safe tool, even if they have a lower yield. However, I do not think we can obtain €6-7 billion from state bonds. Only a foreign loan can help Romania in this moment,” Baltazar told Business Standard.