Budget deficit overrun

BUCHAREST – Romania will have to raise this year’s budget deficit to above the ceiling agreed to with the IMF after the worst floods in 50 years hit the country, Deputy Finance Minister Dragos Neacsu said yesterday. Neacsu told Reuters in an interview that extensive damage forced the government to push the deficit ceiling to around 1 percent of gross domestic product (GDP) from the 0.74 percent agreed upon with the International Monetary Fund last month. «It was a decision made by the Cabinet that the budget deficit was increased, so it goes now to around 1 percent of GDP,» Neacsu said. «The decision was based on the emergency.» Prime Minister Calin Tariceanu indicated last week that the budget shortfall may widen because of the floods, but said the country would try to stick to its other macroeconomic targets. Romania, which hopes to join the European Union in 2007, had originally foreseen a budget deficit of 1.5 percent of GDP for 2005 before reaching the deal with the IMF. Neacsu said the Cabinet was looking for ways to secure funds needed to cope with the flood damage and would borrow in the domestic market rather than abroad if it decided to issue bonds. Torrential rain swelled rivers across the Balkan country this month, killing at least 27 people, making thousands homeless, and destroying roads and bridges. Neacsu also said the ministry would continue with its plan to gradually replace the existing debt issues with fewer domestic benchmark bonds, which could be reopened in the future in line with its strategy to develop the local debt market. Benchmark bonds «The intention is to address more the domestic market and, of course, this process has to start with establishing a number of benchmark bonds,» Neacsu said. «We have identified together with the market that five, 10 and 15 year bonds should be viewed as benchmarks.» Another benchmark could be set at the shorter end, with two- or three-year maturity, he said. The ministry also aims to have its first ever midterm debt management strategy in place in the fall, along with the laws needed to set up an independent debt-management office similar to the one Slovakia introduced in 2003. «The main priority is setting up a debt management office. But we will not be able to have it fully up and running in January 2006,» Neacsu said. Romania, which is due to allow foreigners to buy government bonds from January 1, 2006, also plans to launch electronic trading for bond auctions and hopes to develop an attractive debt market over the next two years. Neacsu also said the ministry still wants to swap some of its international bonds for a 15-year benchmark Eurobond worth 500 million or 1 billion euros by the end of this year if it receives at least one more investment grade rating. He declined to identify the bonds slated for replacement, saying the ministry was still involved in discussions with investment banks, the IMF and bondholders, but added the swap would not affect the whole portfolio. Fitch is the only major agency to rate Romania at investment grade, but analysts expect Standard & Poor’s and Moody’s to join it in the months ahead if the country stays on its reform path.

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