Progress on reducing state-owned enterprise arrears has stalled. Temporary postponement of implementing the excises on fuels should be compensated by freezing expenditures, says the IMF representative at the end of the mission.
Staff level agreement has been reached; the program remains broadly on track. Most end-December performance criteria were met and structural benchmarks have either been met or are nearing completion.
These are the conclusions after teams from the International Monetary Fund (IMF) and the European Commission (EC) visited Bucharest during January 21-February 4 to conduct discussions on the combined first and second reviews under the IMF Stand-By Agreement (SBA) and on the status of Romania’s precautionary balance of payments program with the European Union.
In 2014, IMF estimates real GDP will advance by 2.2 per cent, with domestic demand firming on the basis of a supportive policy framework, better absorption of EU funds, and an improvement in confidence.
“For 2013, we estimate a 2.8 per cent increase in the GDP, the highest economic growth since the beginning of the crisis”, Andrea Schaechter said, in a press conference held at the headquarters of the central bank, mentioning the good agricultural year and exports among the factors having determined this growth. Economic activity was driven mostly by robust industrial output and an abundant harvest, head of the IMF mission in Romania
“It is a lower economic growth than last year, but there will also be other sectors besides agriculture that will play an important role. We are optimistic that new jobs will be created”, Schaechter pointed out. Inflation was placed at 1.6 per cent at the year-end, due to the good agricultural year and the VAT reduction for bread and breadstuffs, but also due to the base effect, the IMF official added. The current account deficit is expected to remain between 1 and 1.5 per cent of GDP, contributing to Romania’s strong external position, which has helped the country weather recent pressures on emerging markets.
On the other hand, the IMF chief draws the attention on the fact that the temporary postponement of implementing the excises on fuels should be compensated by freezing expenditures. As far as inflation is concerned, it will continue to decline in the first semester of 2014, but it will come back over the 2.5 per cent target announced by National Bank of Romania (BNR) in the second half of the year.
“Progress on reducing state-owned enterprise arrears has stalled. However, corrective actions are being launched, including budgetary transfers and restructuring measures. An action plan to sustain lower arrears over the medium term will be defined,” according to Statement at the Conclusion of the IMF and EC Staff Visit.
However, the government failed to meet the arrears target for the last quarter of the previous year, the head of the IMF mission in Romania. More exactly, the government failed to achieve the arrears target of EUR 1 billion that was set for September-December interval. “We hope that the government will recover this gap. The government needs to take the necessary measures for restructuring these indebted companies. We have quarterly targets to meet and the target for the next interval is less than one billion”, said Schaechter.
She specified that transport is one of the sectors that contribute to the higher extent to these arrears. More than 50 per cent of these arrears are related to the transport sector, she pointed out. However, she mentioned Romanian Railways’ CFR SA and CFR Calatori for already adopting their budgets for the year, subsidies following next to be brought in line with these budgets. Schaechter underscored that this problem needs to be solved quickly before the next meeting with the IMF Board, which usually takes place after two months since the end of the previous visit. “Building on the success of the Romgaz IPO, progress toward completion of IPOs of three other state-owned enterprises remains broadly on schedule. Regulatory reforms in energy and transport sectors are set to continue, as well as deregulation of the gas and electricity prices, in line with the earlier agreed roadmaps”, according to IMF statement.
The discussions with the government on this topic focused mainly on short term decisions, in order to be certain that the next target is reached, but there is also need of a medium term decision, according to the IMF head in Romania. She also said that the government made a commitment to come up with action plans for each Minister who has under his/hers subordination state-owned companies.
Gas market for industrial consumers fully liberalized by midyear
Romania has fulfilled its commitments concerning the deregulation. As regards the electricity, the market has been already deregulated since January 1 for non-household consumers, as planned. For the natural gas, the deregulation will be completed in July, earlier than previously estimated, Schaechter said. The measures taken by the Government to protect vulnerable consumers have also met the expectations, the head of the IMF mission added. As regards the listings on the stock market expected this year, namely Hidroelectrica, Electrica, and Oltenia Energy Complex, Schaechter mentioned that the preparations are in progress as planned. The main purpose of these listings is to provide financing, openness and transparency, she said.
Bad loans go on growing, but are covered by provisions
The level of the bad loans in the banking system has continued to grow since the previous visit of the delegation of the IMF, but the institution is not concerned for this development as BNR took the necessary measures to counteract the effects of this growth, chief of the IMF mission to Romania Andrea Schaechter. She made it clear that this year she expected an increase in the domestic demand, based on the growth of the investments in infrastructure, the absorption of European funds, but also a recovery of lending, considering the fact that interests in lei went down to the level of the ones in euros. To all these, one must also add the programme agreed upon with the Government with a view to helping people on medium incomes to restructure their bank loans for a time span covering two years at most.
Talks about CAS cut to be resumed in summer
The 5 per cent cut in the social security (CAS) for employers will be examined by the Bucharest authorities and the representatives of IMF and the talks on this subject will be resumed in summer, depending on the evolution of the budget revenues, chief of the IMF mission to Romania Andrea Schaechter told. According to her, Romania has a very heavy fiscal burden. The aim of the Government is to give incentives in order to stimulate the creation of new jobs and the cut in CAS might contribute to the achievement of this aim, said Schaechter. But she says that they need such an examination so that the measure should be neutral from the budget point of view and should have no long-term impact on pensions.