The Executive Board of the Fund considers that the economy has stabilized. However, growth is weak and downside risks exist, while continued fiscal discipline is essential to anchor macroeconomic stability.
The Executive Board of the International Monetary Fund (IMF) completed late on Wednesday the seventh and eighth reviews of Romania’s performance under its economic program supported by a 24-month Stand-By Arrangement (SBA), a press release informs.
Completion of the reviews makes an additional amount equivalent to SDR 450.6 million (about EUR 520.74 million), available for disbursement, bringing the total resources currently available to Romania under the SBA to an amount equivalent to SDR 3,090.6 million (about EUR 3,571.68 million, 300 percent of quota). The SBA was approved on March 25, 2011 and became effective on March 31, 2011. The authorities are treating the arrangement as precautionary and do not intend to draw under it.
In completing the reviews, the Executive Board approved three waivers for the nonobservance of the performance criteria on net foreign assets of the National Bank of Romania (BNR), the general government balance, and the central government arrears, based on corrective actions taken by the authorities.
Following the Executive Board’s discussion on Romania, Nemat Shafik, Deputy Managing Director and Acting Chair, said: “Romania has successfully concluded the second of two Stand-by Arrangements with the Fund. The economy has stabilized. Core inflation remains low, and the fiscal and current account balances are sustainable. However, growth is weak and downside risks exist. Structural reforms are critical to realizing Romania’s growth potential and creating jobs, while continued fiscal discipline is essential to anchor macroeconomic stability”.
She said that the government’s intention to further reduce the structural deficit at a moderate pace to reach its medium-term deficit objective is appropriate. The budgetary framework will also benefit from the establishment of an effective commitment control system and strict prioritization of public investment which would help to avoid recurrence of arrears.
Tax administration and healthcare reform along with tax base broadening measures are also needed. “Reform of the energy and transport sectors and of state-owned enterprises remains incomplete. The authorities have begun to gradually raise gas and electricity prices and establish a more competitive energy market while taking steps to protect vulnerable consumers. These measures are welcome, but more must be done to reform inefficient state-owned enterprises, including through greater private-sector involvement. The monetary policy stance is broadly appropriate. Romania’s banking system is well capitalized, but vulnerable to external shocks. Accordingly, the authorities should continue to improve their crisis management arrangements and contingency planning. In particular, further efforts to remove obstacles to the resolution of non-performing loans are needed and corporate governance weaknesses at the new unified financial supervisor should be addressed,” Shafik stated.
Voinea, Minister-delegate for budget:
The preconditions were the most important to fulfil
The decision of Executive Board of IMF shows that all the important targets and preconditions have been met, while pointing to the progress of Romania toward macroeconomic stability and on the path to structural reforms, Romania’s Minister-delegate for Budget Liviu Voinea said Wednesday night on the side-lines of an ECOFIN Council meeting in Brussels, Agerpres informs.
“It is essential that the Romanian Government managed to reduce arrears, a problem that had been dragging on since the previous arrangement with the IMF in 2009. The target to be met was RON 300 million at the level of local public administrations, but in the end it was reached RON 150 million, much lower that the target. At the same time, the target at the level of the central administration was RON 20 million and it was achieved 19. The privatisations of Transgaz and CFR Marfa were carried through and a consultant was selected for the Oltenia Energy Complex. These were preconditions that were fully met. The majority of other commitments were fulfilled as well, but the preconditions were the most important. The board agreed that overall Romania made big progress toward fiscal consolidation, macroeconomic stability and structural reforms,” Voinea said.
He added that there are some other things to be done that could be considered for a new arrangement, but pointed out that it is remarkable that the on-going arrangement was successfully concluded and Romania met all its commitments. “This is a signal coming at an excellent tine in the international markets, a time when Romania needed such a positive signal. An arrangement, although extended by three months, from March to June, was officially successfully concluded,” said Voinea.
He added that Romania needs another arrangement with the IMF, mainly to carry through its structural reforms, “in the relatively recent context of rising funding costs for all countries, not just for Romania.”
“Romania certainly does not have a funding problem now, but it would be a good thing for the international markets if the safety of an arrangement with an international partner were in place,” Voinea concluded.
The Romanian Government has hailed the favourable decision of the IMF concerning the successful conclusion of a second stand-by arrangement with the IMF, Romania’s Finance Ministry reported on its website in a press release.
PDL urges Premier Victor Ponta to go before the Parliament during the extraordinary sitting next week and report on the state of play with the fulfilment of objectives in the agreement with the IMF as well as the Government’s evaluation of its conclusion, PDL Vice President Alexandru Nazare said Thursday. He noted PDL would put forward the PDL MPs demand during the Standing Bureau meeting on Monday.
Christine Lagarde’s visit to Romania should take place by mid-July
The managing director of the International Monetary Fund IMF Christine Lagarde should arrive in Romania next month, said Gerry Rice, IMF’s Communications Director, during a recent press conference, hotnews.ro informs. However, the privatization of CFR Marfa railway freight transport company will not affect Lagarde’s visit to Romania. “On that I would say those are two very separate issues. There’s the program review, which is ongoing in Romania. There are a number of issues being discussed and that’s very separate from the planned visit of Christine Large to Romania, which, indeed, should take place somewhere in mid-July, and we’ll get back to you with more specifics on that,” said Gerry Rice, when asked if a delay in the privatization of CFR Marfa would lead to the cancellation of Christine Lagarde’s visit. During the visit to Romania, the managing director of IMF will meet the country’s president Traian Basescu and Prime Minister Victor Ponta.