East EU states eye foreign debt, IMF warns on budgets

International lenders warned emerging European states on Tuesday to strengthen plans to consolidate their finances even as Poland, Romania and Hungary said they were assessing global market appetite for their bonds.

The International Monetary Fund and European Bank for Reconstruction and Development criticised plans in Hungary and -- to a lesser extent -- Poland to unravel pension reforms to boost budget revenues and plug short-term fiscal gaps. Anne-Marie Gulde, senior adviser in the IMF's European Department, said that although central and Eastern Europe had largely returned to growth, the region was suffering from "adjustment fatigue" and remained vulnerable. "We have a number of countries where deficits are uncomfortably high. This includes Poland and the Baltics," Gulde told a Euromoney conference. She was particularly critical of Hungary, where Prime Minister Viktor Orban's rightist government has pushed through one-off revenue-boosting measures including taxes on banks and and seizing USD 14 billion in private pension assets to cover budget spending. Piroska Nagy, the European Bank for Reconstruction and Development's director for country strategy and policy, echoed the warning in an interview with Reuters Insider TV, pointing particularly to the pension moves. "We are a little bit concerned about the ongoing attacks on the pension sectors," she had told the conference, calling the sectors "absolutely critical". Polish targets, debt Gulde said Poland's affirmation it would cut its budget deficit to the European Union's 3% ceiling -- from an estimated 7.9% last year -- by 2012, was positive, and a paper recommending extending a Flexible Credit Line to Warsaw would be discussed by the IMF's executive board on Friday. But she said a move by Prime Minister Donald Tusk's government to shift pension payments from private accounts into state coffers and the lack of defined structural reforms could complicate hitting that target. "They can't afford to have this uncertainty for long," she said. Poland -- the only EU economy to avoid contraction during the global crisis -- has become a market favourite, with the zloty appreciating 2.4 percent this year. Selling bonds Poland's economy probably grew by 4.3% to 4.4% year-on-year in the fourth quarter and by 3.8% in the whole of 2010, Deputy Finance Minister Dominik Radziwill told Reuters. Warsaw successfully issued 1 billion euros in euro denominated bonds last week and Radziwill said it could issue more in other currencies. "We will be probably issuing in other foreign currencies, maybe yen and Swiss franc ... I would say in the first half of the year," he told journalists. Hungary said it could wait for details of a government fiscal consolidation plan, due in February, before it, too tapped foreign markets this year for up to 4 billion euros, while Romania said it would step up borrowing. Both countries returned to foreign markets last year after taking IMF/EU bailout packages during the crisis. "When it comes to financing, we have to go to markets and become a more frequent bond issuer than until now," Romanian Deputy Finance Minister Bogdan Dragoi said. Many economists have expressed surprise that the region seems to be shielded from market contagion tied to worries over the creditworthiness of debt-laden euro zone states. It looks be emerging from the crisis at a growth rate of around 4 percent this year, outpacing western Europe. But Gulde said there was a growing tendency for countries to take one-off steps to deal with budget deficits rather than tackle the more painful reforms needed for long-term growth. "Markets are focused on the West and (emerging European states) may have been able to fly under the radar, but if some domestic issue comes up or risk appetite changes, there are still some underlying vulnerabilities," she said.