Staff teams from the International Monetary
Fund (IMF), European Commission (EC), and World Bank visited Bucharest during
July 31 to August 14 for the sixth review of Romania’s economic program. Policy
implementation remains broadly on track, despite challenging conditions.
Staff-level agreement has been reached with
the authorities on measures that will be discussed by the Executive Board of
the IMF in a meeting that is tentatively scheduled for late September. The
results of the review will also be presented to the Economic and Financial
Committee of the EU in September. Unwavering political support is needed to
ensure implementation of the program measures.
Real growth is projected at around 1 percent
in 2012 and 2½ percent in 2013. The subdued economic activity is mainly due to
heightened political uncertainty and the slowdown in the euro area. Inflation
is expected to remain within the target band set by the National Bank of
Romania. Banks remain vulnerable to adverse developments in the euro area but
maintain reassuring capital buffers, while loan-loss provisions are adequate.
The June fiscal deficit target was met and
the ambitious objective for the year as a whole (below 3 percent of GDP in
accrual terms) is achievable but will require continued spending restraint.
However, the arrears targets for the general government were missed by a small
margin and measures will be taken shortly to reduce these arrears. For 2013,
the authorities will face difficult trade-offs in achieving a further
consolidation of at least 0.5 percent of GDP. Strong political determination
will be needed to discontinue nonperforming public investment projects and
optimize public sector staffing. When revising the draft health care law, it is
critical to restore financial sustainability and give strong incentives to
health care institutions to increase their efficiency.
Political determination is needed to ensure
that overdue structural reforms—necessary to achieve higher and inclusive
growth—will be put in place. Energy legislation has been promulgated, and the
law on the energy sector regulator will come into effect soon. Roadmaps for
liberalizing energy prices need to be implemented and the authorities are
working on providing adequate protection for vulnerable energy users. The
government will also speed up the introduction of professional management in
and privatization of state-owned enterprises, in order to improve their
efficiency.
The objectives of Romania’s IMF, EU and WB
supported program are to ensure macroeconomic and financial stability as well
as to put Romania’s economy on a sustainable growth path with sound public
finances and job creation, while protecting the poor and most vulnerable. The
program includes a Stand-By Arrangement from the IMF of about €3½ billion (SDR
3,090.6 million), Balance of Payment Support from the EU of €1.4 billion, and
various loans from the WB. The support from the IMF, the EU as well as from the
DPL-DDO from the WB (€1 billion) are precautionary, meaning that the
authorities have stated that they currently do not intend to draw on these
resources, which are available as long as the conditionality is observed.
The IMF team also held discussions for the
2012 Article IV consultation, the regular evaluation of the economy under
Article IV of the Fund’s Articles of Agreement. A concluding statement
summarizing staff findings has also been published.
