Romanian President Traian Basescu said Monday evening he wouldn’t sign the country’s latest memorandum of understanding to a EUR2 billion loan agreement with the IMF, because of a new tax on fuel announced by the government.
Basescu requested the government reconsider the tax, which is part of a new set of measures aimed to reduce the 2014 budget deficit to 2.2% of the gross domestic product.
The policy package was agreed with the IMF at a review mission in November and was included in the memorandum of understanding. However, the IMF cannot complete its review on Romania until the president ratifies the document.
“The IMF staff is awaiting a decision by the authorities on whether they wish to modify the policies needed to secure the agreed deficit target, before submitting the policy package to the Fund’s Executive Board,” the IMF said in a statement Tuesday.
Considering that Romania’s deal with the IMF is precautionary, meaning the authorities do not plan to draw on the loan, the delay should only trigger moderate consequences and should not endanger the loan program in its entirety, Romanian analysts said.
“If they [Romania and the IMF] can’t reach an agreement regarding this tax, they’ll find another tax to agree upon,” economist Florin Citu said.
Ionut Dumitru, chief economist with Raiffeisen Bank Romania, said in turn that Romania’s agreement with the IMF remains valid despite the potential delay.
“The obvious consequence regards the disbursement of the first loan tranche, but Romania wouldn’t have drawn on the money anyway,” Dumitru said.
Another negative effect would be a delay in the approval of the 2014 budget, according to analysts. As per the agreement with the IMF, Romanian lawmakers must approve next year’s budget by December 31, 2013.