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June 27 (Bloomberg) -- The International Monetary Fund approved a $683 million stand-by payment to Romania after the Balkan nation trimmed spending to keep its budget deficit below the target set under a precautionary loan.
The IMF board of directors agreed to make the funds available as the government met the first-quarter budget-deficit target and approved an increase in natural gas prices for factories as of July, the Washington-based fund said in an e- mailed statement today. Romania doesn’t plan to draw on the disbursement, instead treating it as “precautionary,” according to the statement.
“The authorities are on track to meet their fiscal targets for 2011,’” John Lipsky, acting managing director of the IMF, said in a statement. “Further efforts are now needed to implement deeper and challenging structural reforms in the state-owned enterprise sector in order to secure the economic gains from earlier reforms and enhance opportunities for investment and growth.”
The east European country plans to borrow money from domestic and international markets to fund its budget deficit and attract investors through sales of energy stakes to help spur its recovery after using bailout funds to keep the economy afloat during a two-year recession. The government seeks to sell minority stakes in the country’s largest oil company OMV Petrom SA, natural gas producer Romgaz SA and its utilities Transgaz SA and Transelectrica SA this year and next to finance infrastructure investments.
Romania, which had relied on a 20 billion-euro ($28.6 billion), two-year international bailout until this year, obtained a precautionary agreement with the IMF and the European Union valued at 5 billion euros. The agreement aimed to provide a safety net during Europe’s sovereign-debt crisis, and Romania doesn’t plan to draw money from the new agreement as it has sufficient reserves. Instead, the credit will act to reassure investors, the government has said.
The government narrowed its budget deficit to 5.2 billion lei ($1.75 billion) at the end of March. That met the 6.3 billion lei target set under the new agreement, compared with a shortfall of 8.2 billion lei in the same period of last year, after it cut public wages and froze pensions since July 2010. The government plans to reduce Romania’s deficit to within 3 percent of GDP in 2012.
--Editors: Kevin Costelloe, Chris Anstey
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