November 6 (SeeNews) - The International Monetary Fund (IMF) said on Friday it has suspended Romania’s economic review under a stand-by arrangement and will postpone its third loan tranche until the political situation in the country stabilises.
"We are not able to conclude the economic review at this moment. We can rapidly conclude it once the political situation stabilises," the head of the IMF mission to Romania Jeffrey Franks told a news conference, wrapping up a two-week review of Romania's economic performance.
Romania signed a 20 billion euro ($29.8 billion) aid deal with the IMF, the European Union and the World Bank in March to support its crisis-hit economy.
“If we look at the reasons for the performance through end-September in the fiscal area what we see is that the performance of the central government was quite good. But there were significant overruns in other areas of government. Particularly in decentralised entities including local governments and public enterprises,” Franks explained.
“On the deficit target, the overperformance of the central government compensated for higher-than-expected deficits in these other areas. But it didn’t occur on the expenditure target.”
Romania targets a budget deficit fequivalent to 7.3% of the gross domestic product (GDP) this year and 5.9% of GDP in 2010 to match the projections made in the aid package agreement. The country’s consolidated budget deficit was equivalent to 5.1% of the GDP through September.
Franks said he expects the expenditures to be handled under better control by the end of the year. He added the IMF has lowered its forecast for Romania’s economic fall this year to a range of 7.5%-8.0% compared to its previous forecast of a 8.5% contraction.
“We continue to expect weak positive growth for 2010. What that means is that the growth rates, which have been negative over the past few quarters, will begin to flatten out and turn positive in the coming months. And we expect that by the end of 2010 there will be a fairly robust positive growth rate but the average for the year will still be relatively low,” he said.
Following the news conference, the IMF, EU and the World Bank said in a joint press release that “the current political environment is hindering further fiscal consolidation that remains necessary."
"The current interim government cannot legally submit a 2010 budget to Parliament or take strong commitments on measures to bring the 2010 deficit down to 5.9% of GDP, in line with programme targets,” the press release said.
Political uncertainty has been high in Romania following the fall of the country's minority government in October.
Earlier on Friday, President Traian Basescu nominated the mayor of one of the Bucharest districts, Liviu Negoita, as prime minister-designate, two days after parliament rejected his previous nomination Lucian Croitoru, an advisor to the central bank governor.
According to analysts, Negoita who is member of ruling Democrat-Liberal Party, has slim chances of winning approval for his cabinet in parliament, where the opposition controls two-thirds of the seats.
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