November 11, 2014 / 2:07 PM / 4 years ago

Don't put years of progress at risk, IMF urges Romania

SOFIA (Reuters) - The International Monetary Fund urged Romania on Tuesday not to put at risk years of progress in getting its spending under control, as Prime Minister Victor Ponta’s government looks set to exit an aid deal next year.

The IMF came to Romania’s rescue in 2009 when the eastern European country endured a painful recession, nudging it to cut its fiscal deficit and implement reforms in a series of deals that restored credibility with investors.

Ponta is expected to become president in an election campaign that heads to a run-off on Sunday, trumpeting his record of easing austerity measures and cutting some taxes in his two years in office, and promising pension hikes next year.

Such pledges have put the spotlight on the 2015 budget and whether a new government will be tempted to loosen fiscal policy, despite signing up to a European Union fiscal treaty that would keep the deficit to 1.4 percent of national output.

The IMF’s latest deal with Romania, the third since 2009, is a four billion euro standby aid agreement that expires next year and will probably not be renewed. The IMF has suspended talks about the current deal until after the election.

“The programme is set to expire at some point next year and after the programme expires, we will take stock of what is the situation at that point,” Guillermo Tolosa, IMF resident representative to Romania and Bulgaria, told Reuters.

“But Romania has made considerable progress in its reform effort and the expectation at this point is that Romania will indeed be able to graduate from our stand-by arrangements that we’ve had in the last 5-6 years.”

The Romanian government has targeted a fiscal deficit of 2.2 percent this year, a far cry from the 7.2 percent hit in 2009.

But Ponta in October signalled his unwillingness to stick to the 1.4 percent target for 2015, and the European Commission in a recent report forecast the deficit would be as high as 2.8 percent, assuming current fiscal policy stayed the same.

“There is a commitment from Romania to continue to consolidate the fiscal situation. So we expect such commitment to be fulfilled,” Tolosa said in the Bulgarian capital Sofia.

“There has been such a large effort to make the economy stronger and more resilient to shocks, because of this enhanced stability arising from the fact that the fiscal accounts are in a much, much better place than they were six years ago,” he said. “So, we think it is extremely important for Romania not to put at risk this considerable improvement.”

Writing by Matthias Williams

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