Romania showed progress in stabilization and reform, facilitated by substantial fiscal and external adjustments, under the Stand-By Arrangement. Executive Directors commended these developments, and emphasized the need to improve fiscal and monetary policies, and accelerate structural reforms. Directors appreciated the authorities' commitment to accelerate European Union accession, and stressed the need for fiscal consolidation, financial discipline in state-owned enterprises, and rapid privatization for reducing inflation and protecting external sustainability. They urged the authorities for the full implementation of the economic program, and approved a Stand-By Arrangement.

Abstract

Romania showed progress in stabilization and reform, facilitated by substantial fiscal and external adjustments, under the Stand-By Arrangement. Executive Directors commended these developments, and emphasized the need to improve fiscal and monetary policies, and accelerate structural reforms. Directors appreciated the authorities' commitment to accelerate European Union accession, and stressed the need for fiscal consolidation, financial discipline in state-owned enterprises, and rapid privatization for reducing inflation and protecting external sustainability. They urged the authorities for the full implementation of the economic program, and approved a Stand-By Arrangement.

I. Introduction

1. The Government of Romania has requested an 18-month Stand-By Arrangement in the amount of SDR 300 million, or 29 percent of quota, for the program period October 2001–March 2003. The Letter of Intent (LOI) and the accompanying Memorandum on Economic and Financial Policies (MEFP) appear as Appendix IV.1

2. In concluding the last Article IV consultation on November 29, 2000 (SM/00/249), Executive Directors commended the authorities for their significant progress in stabilization and reform, facilitated by substantial fiscal and external adjustments, but noted that Romania still lagged behind most other transition economies in Eastern and Central Europe. Directors regretted that policy slippages with respect to the reduction in domestic arrears and the limits on the public sector wage bill had prevented the conclusion of the second review under the Stand-By Arrangement, and called on the government to implement a sustained and vigorous strategy of stabilization and structural reforms. Directors stressed the importance of further fiscal consolidation by recommending a budget deficit ceiling of 3 percent of GDP in 2001. This, along with prudent monetary policy, financial discipline in state-owned enterprises (SOEs), and rapid privatization was seen as crucial for successful disinflation and strengthening of Romania’s external position.

3. The left-wing Party for Social Democracy in Romania (PDSR), now the Social Democrat Party (PSD) returned to power in the wake of the parliamentary elections in late 2000. Even though he PSD does not hold the majority in the Parliament, the government enjoys parliamentary support from the Hungarian Party and occasionally from two centrist parties of the previous ruling coalition. The nationalist Party for Greater Romania is the main opposition party, but it has lost much public support since the elections. The new government is strongly committed, with the backing of all political parties, to enrolling Romania in NATO and accelerating to EU accession.

4. The World Bank is currently negotiating the second Private Sector Adjustment Loan (PSAL II), which will provide for a far-reaching privatization program, while also addressing the issues of the business environment and energy sector reform. The negotiations are close to completion, with the principal outstanding issues remaining in the area of privatization.

II. Macroeconomic Background

5. Over the last 10 years, Romania’s transition process was slow and uneven compared with other accession economies in Central and Eastern Europe. Owing to the difficult inheritance from the pre-transition era, but also to the lack of consistent policies and insufficient reform efforts, inflation remained among the highest in the region, and growth performance was sluggish and subject to boom-bust cycles. Moreover, progress in restructuring and privatization in the industrial sector was slow, particularly in energy-intensive heavy industry, while foreign direct investment, measured per capita, was among the lowest in the region. All five Fund-supported programs in the period 1990–2000 went off track, in most cases because of the government’s failure to impose financial discipline in state-owned enterprises.

6. In 1999, to address balance of payments pressures, the government implemented a stabilization program, supported by a Stand-By Arrangement, which set the stage for a recovery in 2000. Following the deterioration in the external current account deficit in 1996–98, Romania became vulnerable to balance of payments pressures, which were eventually triggered by the Russian crisis in 1998. The stabilization program included a strong fiscal correction that, in combination with the currency depreciation, improved competitiveness and reduced the current account deficit to sustainable levels. Extensive bank restructuring created conditions for more effective monetary policy. In 2000, after three years of decline, GDP grew by 1.6 percent (Table 1), despite a sharp drought-related loss in agricultural production. Output growth was driven by strong exports in the first half of the year, and by domestic demand in the second half. On the back of the improved performance in the external sector, Romania successfully re-entered the international bond market in September 2000.

Table 1.

Romania: Main Economic Indicators

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Sources: Romanian authorities; and Fund staff estimates.

Program, except where indicated.

Weighted NBR average interest rate; from 1997 interbank rate.

September 2001.

In 2000, the current account deficit was revised upwards by 0.7 percent of GDP due to methodological revision of the recording of imports financed by financial leases.

Including gold. Imports of goods and services of the following year.

Table 2

Romania: Balance of Payments, 2000–01

(in millions of U.S. dollars)

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Sources: Romanian authorities; and Fund staff estimates.

Includes revised leasing data.

Including public enterprises.

Includes gold.

7. The stabilization program supported by the Stand-By Arrangement, however, veered off track in the second half of 2000. Owing primarily to the absence of wage discipline in public enterprises and a loosening of the fiscal stance, the inflation target was widely overshot. As a result of favorable terms of trade effects and growing transfers, the current account deficit declined for the year as a whole. But the impulse from strengthened domestic demand and the effects of the drought led to rapid growth in imports and a widening in the trade deficit in the second half of the year.

8. During the first half of 2001 domestic demand grew strongly, the current account deficit widened, and inflation declined less than targeted. GDP growth of 5 percent in the first half of 2001 was driven by domestic demand (Text Table 1), and particularly household consumption (see paragraph 9). Growth in fixed capital formation was modest, as private investment was reportedly stagnant. Export growth, though dampened by a slowdown in trading partner demand, remained robust (Figure 1); developments in the ULC-based real effective exchange rate suggest that, owing to productivity growth, competitiveness has remained rather stable since the large depreciation in 1998 (Figure 2). However, imports grew by 30 percent in U.S. dollar terms, and as a result, the current account deficit more than doubled relative to the same period of 2000. Inflation slowed, but less than initially targeted, which led the authorities to revise the target for end-year inflation from 25 percent to 29 percent (Figure 3). The main factors behind the declining inflation rate were a rapid reduction in the rate of crawl (see below), the fading effects of the 2000 drought, and delays in administered price adjustments.

Table 1

Romania: Real GDP Growth, 1999-2001

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Source: National Institute for Statistics; and Fund staff projections.

Includes consumption of non-profit institutions serving households, mainly political parties.

Figure 1.
Figure 1.

Romania: Exports, Imports and Trade Balance, 1993-2001

Citation: IMF Staff Country Reports 2001, 204; 10.5089/9781451832761.002.A001

Source: Romanian Authorities; and Fund staff calculations.
Figure 2.
Figure 2.

Romania: The Real Exchange Rate, 1996-2001

December 1996 = 100

Citation: IMF Staff Country Reports 2001, 204; 10.5089/9781451832761.002.A001

Source: Romanian authorities; and Fund staff calculations.
Figure 3.
Figure 3.

Romania: Economic Indicators, 1995-2001

Citation: IMF Staff Country Reports 2001, 204; 10.5089/9781451832761.002.A001

Source: Romanian authorities; and Fund staff calculations.

9. Rapid growth in public sector wages and in social transfers were the primary factors behind the growth in consumer spending. In the run-up to parliamentary elections in November 2000, wage discipline in the public sector broke down. A substantial increase in the minimum wage and collective wage contracts signed in early 2001 exacerbated the problem. As a result, year-on-year public sector wage growth in the first quarter of this year was 52½ percent in nominal terms (9 percent in real terms), somewhat faster than economy-wide wages. In April—July growth in economy-wide net wages was somewhat lower, partly reflecting the effects of the higher employee social security tax, but public-sector wages continued to surpass wage growth in the private sector. In line with promises made in the election campaign, the budget approved by the new government also provided for an increase in social transfers of 8 percent in real terms.

10. Financial discipline of state-owned enterprises deteriorated. Arrears of large state-owned enterprises, which are a perennial problem in the Romanian economy, increased in the year to July by 38 percent in real terms, owing to weak wage discipline and increased investment spending. The deterioration in the financial performance in the energy sector was particularly pronounced. Owing to the delayed adjustment in the electricity and heating prices and the faltering efficiency in collections, the losses in the main thermo-power supplier, Termoelectrica, more than doubled in the first half of 2001 relative to the same period in 2000, and in the absence of corrective measures would have reached more than 2 percent of GDP by end-2001. In the natural gas sector, as the user price was not adjusted in line with the rising import prices, the implicit subsidy to end-users was set to increase by 1 percentage point of GDP (see Box 1 on the losses and implicit subsidies of the energy sector).

11. The latest data indicate that in the first eight months of the year, fiscal policy did not support disinflation. The deficit in the first eight months of the year amounted to 2.4 percent of GDP up slightly from the same period of the previous year, despite stronger growth and a lower deficit target for the year as a whole. Moreover, with large savings on interest payments, noninterest expenditure of the general government grew by about 12 percent in real terms.

12. The NBR has continued to conduct monetary policy in the framework of a managed float, with the objective of avoiding excessive real effective appreciation. The average monthly depreciation rate relative to the U.S. dollar slowed from about 3.3 percent, in the second half of 2000, to 1.5 percent during June-August 2001 (Figure 4). However, the NBR succeeded in increasing its official reserves by about US$1.2 billion during January—August, in spite of the sharp widening in the current account deficit. This was a result of public net borrowing abroad, equivalent to US$955 million, and private sector inflows that were attracted by the growing differential between the crawling rate and the lei interest rates, as well as by the perception of a decline in the country risk. In the face of inflows, the NBR let nominal domestic interest rates decline in the second quarter of 2001 (Figure 5); however, with falling inflation, real interest rates remained at about 10 percent (Figure 6).

Figure 4.
Figure 4.

Romania: Monthly Depreciation Rate of Lei, 2000-01

(Three-month Moving Average)

Citation: IMF Staff Country Reports 2001, 204; 10.5089/9781451832761.002.A001

Source: Romanian Authorities; and Fund staff calculations.
Figure 5.
Figure 5.

Romania: Evolution of Nominal Interest Rates, 2000-01

Citation: IMF Staff Country Reports 2001, 204; 10.5089/9781451832761.002.A001

Source: Romanian Authorities; and Fund staff calculations.
Figure 6.
Figure 6.

Romania: Evolution of Real Interest Rates, 2000-01

Citation: IMF Staff Country Reports 2001, 204; 10.5089/9781451832761.002.A001

Source: Romanian Authorities; and Fund staff calculations.

13. Progress has been achieved in improving the soundness of the financial sector. The major achievement in this regard is the sale of Banca Agricola to a reputable Austrian bank. Although the vast majority of the banking sector in terms of market share can now be considered as sound or fairly sound and the capital adequacy ratios are much above the usually recommended prudential levels, some significant weaknesses remain. The informativeness of prudential ratios needs to be enhanced by a move to international accounting standards by the banks. The recent problems with two small banks raised the issue of NBR’s insufficient authority to screen purchases of shares by investors that act as a group, with each individual investor purchasing less than 5 percent of shares. The FNI scandal—a fraudulent collapse of the country’s largest mutual fund in May 2000, which raised serious governance issues—still remains to be sanctioned by the court.

Romania: Energy Sector: Losing Money and Providing Subsidies

A failure to adjust energy prices, combined with poor collection and payments discipline, has put the energy sector in Romania in a precarious state. In the electricity and heating sector, the most acute problems are focused in Termoelectrica, which is the dominant thermo-power producer, supplying more than 50 percent of consumed electricity and about 40 percent of heat to industrial users and district heating companies. While the losses of Termoelectrica units in 1999 were modest, at about US$60 million, they skyrocketed to US$270 million in 2000, and without price adjustments in July and those envisaged under the program, would have reached US$580 million in 2001. The increase in losses reflected rising input costs, which resulted from a combination of more expensive fuel supplies, exchange rate depreciation, and delayed adjustments in lei denominated prices. In addition, Termoelectrica also has grave problems with collecting its bills, with the efficiency of collection of only 82 percent in 2000, which have worsened in the first half of 2001. By adjusting for the losses on collection, which under current Romanian accounting rules are not included in the above estimates, total losses would have increased by almost 1 percentage point of GDP in 2001 relative to 2000. While in the past the losses were financed primarily by tax arrears, Termoelectrica has recently started borrowing large amounts abroad using government guarantees.

The implemented adjustments of heating and electricity prices by 57 percent and 15 percent in July, respectively, along with further adjustments that the authorities have agreed to under the program, will bring Termoelectrica’s electricity price to cost-recovery by April 2002, and its heating price to cost-recovery by July 2002. The authorities have publicly announced that prices will now be adjusted monthly, in line with the above-mentioned targets. Finally, the authorities target a substantial increase in the collection rate of Termoelectrica, by establishing escrow accounts for district heating payments, and by ensuring a 100 percent collection rate from the electricity distribution company to Termoelectrica. (The collection rate of the electricity distribution company is at a satisfactory level of about 97 percent, but revenue is not being transferred to Termoelectrica.) Together, these actions will ensure that Termoelectrica’s loss in 2001 (as a percentage of GDP) will not increase relative to 2000, and will be reduced relative to GDP by almost 1 percentage point in 2002.

Table 1.

Termoelectrica’s Losses, 2000-2002

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Source: ANRE (electricity regulatory agency); World Bank, staff estimates.

Based on increases in heating prices, electricity prices, and collection rates, as described in the LOI.

Another problem is the natural gas sector. Romania is a relatively large producer of natural gas, with production of about 14 billion cubic meters in 2000, but annual production has dropped by 26 percent since 1994, and is currently declining at about 6 percent per annum. As almost no new exploration is taking place, a rising share of consumption is covered by imports, which reached 17 percent of consumption in 2000. The decline in production reflects a low wellhead price for domestic production, which has recently been kept on average at US$35 per thousand cubic meters (tcm). Moreover, the collection rate of the gas distribution companies has been weak, in particular from industry and power generation, and has deteriorated so far in 2001. When import prices surged from about US$65/tcm in 1999 to US$120/tcm in 2000, the implicit subsidy to domestic users jumped from 1.6 percent of GDP in 1999 to 3.4 percent in 2000 (see Table 2 below). Without an adjustment in prices, and with import prices increasing even further to $130/tcm, the implicit subsidy would have reached 4.5 percent of GDP in 2001. It is possible that the expansion of exports in several sectors in 2000 and 2001 reflected the increase in implicit subsidies through below market gas price and partial collection for deliveries. Moreover, until recently, prices for industrial users have varied widely on a discretionary basis, which created additional distortions.

Table 2

Implicit Subsidy From Natural Gas,1999–2002

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Source: ANRGN (gas regulatory agency); World Bank; staff estimates.

Unified price for natural gas increased to $82.50/tcm on August 10, 2001, and maintained at that dollar price by regular quarterly adjustments to end–2002. Cumulative collection rate of Distrigaz Nord and Distrigaz Sud improved to 95 percent by end–2001, 97.5 percent by end–2002.

In August, the authorities unified end-user prices for natural gas, and raised prices substantially (90 percent for households), and they plan to maintain the dollar price of natural gas via quarterly adjustments in the lei price. Collection rates are also to be improved substantially, through the use of escrow accounts and special task forces within the gas distribution companies. With these decisions, the value of the implicit subsidy on an annual basis will be held to 3.6 percent of GDP in 2001, and reduced to 2.8 percent of GDP in 2002.

Combined, as a result of the implemented measures, losses in the energy sector and the implicit subsidies provided to energy users are set to decline by 1.7 percentage points of GDP in 2002. This will, however, be partly offset by higher investment in the energy sector, a transitory weakening in the financial performance of energy-intensive state-owned enterprises and higher tax payments to the budget, which will reduce the net effect on the saving-investment balance to about ¾percentage points of GDP.

14. Privatization in the enterprise sector was extremely slow in the second half of 2000, and in the first half of 2001. Although a large number of companies were to be prepared for privatization under the PSAL I operation, which was completed in mid-2000, the actual privatization was very slow. Moreover, two mid-size privatization deals unraveled. The authorities have signed a privatization contract for the largest state-owned steel producer, SIDEX, but this deal is still subject to uncertainty given its complexity. The main reasons for the slow pace and set-backs in privatization, appear to be large tax debts of the state-owned companies, and the government’s practice of insisting on investors’ commitment to large investment plans and limiting layoffs for an extended period. The use of open and transparent tenders for privatization has remained insufficient.

III. The Authorities’ Program of Macroeconomic Stabilization And Reform

15. The authorities’ program aims at gradual disinflation and containing the external current account deficit, while keeping the positive growth momentum and accelerating structural reforms. The gradual approach to disinflation—from 40 percent in early 2000, to 22 percent at end-2002—reflects difficulties in eliminating the backward looking wage indexation. The targeted decline in the external current account, from an annual rate of 7 percent of GDP in the first half of 2001, to 5½ percent of GDP in 2002 reflects assumptions that output will continue to grow at about 5 percent, primarily on account of a strong pick-up in private investment.2 To achieve these goals, the key points of the program are: (i) fiscal adjustment equivalent to ½ percentage point of GDP in 2002; (ii) a reduction in the energy sector losses by 1.7 percentage points of GDP, which will, conservatively estimated, improve the saving/investment balance of public sector enterprises by at least ¾ percentage points of GDP; (iii) public sector wage policy consistent with the disinflation target, and lower labor costs in state-owned enterprises; (iv) a gradual reduction in the depreciation rate, with an eye on external viability; (v) structural reforms that include an ambitious privatization agenda to downsize the public sector and measures to improve the business climate, and (vi) strengthening of the regulatory framework and supervision in the financial system.

A. Fiscal Policy

16. The measures agreed under the program provide for fiscal tightening in the remainder of 2001 and in 2002. In the budget rectification approved in August, the government tightened the general government deficit target to 3.5 percent of GDP (the original target was 3.7 percent of GDP; see Table 3), which will imply substantial tightening in the remainder of 2001. In this context, the authorities agreed to a mechanism that would provide for cuts in discretionary spending, including a partial freeze of capital expenditure in the fourth quarter. The higher-than-expected deficit in the first eight months of the year indicates that the authorities will indeed need to apply this mechanism (¶93). Further fiscal consolidation is envisaged for 2002, with the deficit declining to 3.0 percent of GDP, in line with the medium-term economic strategy submitted to the EU. The mission and the authorities also agreed on a prudent revenue envelope for the 2002 budget, which takes into account a downward risk in growth (¶11).

Table 3

Romania: Summary of Consolidated General Government, 1998-2002

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Sources: Ministry of Finance; and Fund staff estimates.

1998 and 1999 actual values adjusted for the collections of health contributions (3,484.5 and 10,483.2 billion lei, respectively) which were previosuly classified as wage taxes under the program.

Overall balance (cash, including grants) plus financing.

Excluding cash expenditure for bank restructuring.

Program GDP for EBS/99/141 adjusted for the subsequent upward change in base-period GDP.

17. The program provides for an ambitious set of measures to improve the structure of the tax system and to bolster the business climate (¶12). Payroll taxes will be reduced by 3 percentage points with a view to offsetting a similar increase in 2001 of social security taxes, which were already extremely high. As a major effort to improve the business climate, the new profit tax law will eliminate distortionary incentives under several laws and replace them with a uniform 20 percent investment tax allowance. Customs duty and VAT exemptions for raw materials imported by small- and medium-size enterprises will be eliminated. The new VAT law, effective on January 1, 2002, will substantially lower the number of VAT exemptions and items subject to the zero-rate and will reduce delays in VAT refunds to less than 30 days. The authorities also imposed restrictions on tax rescheduling, extended in practice primarily to state-owned companies; such rescheduling had started to be seen by the private sector as creating an uneven playing field.

18. The authorities agreed on several other important measures to improve transparency in fiscal operations (¶8 and 16). The plan to convert called guarantees into government-owned equity, which would have led to an unintended re-nationalization of some privatized enterprises, will be replaced by stronger efforts to improve collections, including the sale of claims to the private sector. Measures under the program will also discourage pressures to extend government guarantees for enterprises. Furthermore, the government agreed to discontinue the practice of using privatization receipts as collateral for bank lending to state-owned companies.

19 On the expenditure side, the 2002 budget will balance expenditure saving measures with measures to improve social protection (¶ 13–14). After substantial increases in late 2000 and the respective carry-over effects in 2001, budget sector average wages will remain constant in real terms in 2002. Subsidies will be reduced by 11 percent in real terms, which will improve incentives for private and public companies to become more competitive. The new Minimum Income Guarantee scheme—involving additional spending of about ½ percent of GDP—will substantially improve the system for supporting the poorest groups of the population and mitigate the impact of the energy sector reforms. The child allowance will also be increased and its targeting improved. To compensate for the inequitable treatment of pensioners who retired before 1999, the government will adjust their pensions over a three-year period, while mitigating the impact of this measure by adjusting pensions with less than the forecasted inflation (¶15).

B. Measures to Address the Quasi-Fiscal Deficit

20. The government’s program includes strong measures to reduce losses in the electricity and heating sector and eliminate the implicit subsidy to natural gas users (¶18–19) Following the adjustments in electricity, heating and gas prices already approved in July, the authorities decided to give priority to further raising the electricity price to the cost recovery level by April 2002; this is also a condition for continued World Bank lending to the electricity sector. The national reference price for heating, as set in July, will be preserved in U.S. dollar terms through the coming winter season, but then it will be increased to a level of cost recovery for the largest heat producer as of July 2002. The natural gas price would also be preserved constant in U.S. dollar terms until the end of 2002. The gap relative to the gas market price in the region will then start to be closed further as of January 2003; by that time, the government will amend tax legislation to recover part of the windfall gains of domestic producers.4

21. Measures to improve the collection rates of the main utilities will additionally enhance the financial performance of the energy sector (¶19). Following the recommendations of World Bank experts, the government has agreed to establish a system of escrow accounts to ensure that a fixed percentage of the final customer payments, as well as subsidy payments by the government, is immediately transferred to the main thermo-power supplier and the two gas companies, circumventing the local heat-distribution companies which have poor payment records. In addition, the government will create special task forces in charge of improving collections and reducing arrears from the 20 largest nonpayers to gas companies; the Ministry of Industry will prepare monthly reports on the progress in this area and share it with Fund and World Bank staff.

C. Wage Policy

22. On public sector wage policy, the government has agreed to prevent any increase in wages in 2001 above that in the approved budgets of state-owned companies, and to approve a comprehensive program for containing wage growth and reducing employment in the state-owned companies in 2002 (¶21). After the substantial increases in wage costs in 2001, growth in wage bills of state-owned companies will be limited on average to 22 percent, implying a reduction of about 3 percent in real terms. To achieve this, as prior actions, the government will impose a partial hiring freeze in state-owned industries and it will decide on ceilings for wage growth on individual companies consistent with the above-referenced target. Moreover, the budgets for the state-owned companies will be approved before the end of 2001. The government will also ensure that the 2002 social pact with the trade unions is consistent with the above-referenced objectives, and it will slow down the implementation of its plan to raise the statutory minimum wage.

D. Monetary Policy and Financial Sector Reform

23. In the field of exchange rate policy, the mission and the authorities agreed that the current framework of managed float is appropriate for achieving further disinflation and preserving the external equilibrium (¶22). Aided by the strict implementation of wage and fiscal policies, the NBR will attach more weight to the inflation objective, while not putting external viability at risk. The exchange rate’s average monthly depreciation will be lowered further in 2002, consistent with the disinflation objective. The weight of the euro in the notional basket used by the NBR to decide on interventions will be gradually increased, to provide more stability vis-à-vis the main trading partners. By reducing the frequency of interventions, the NBR will also provide wider room for fluctuations in the exchange rate to discourage short-term capital inflows. The NBR also agreed that, at this stage, nonresident short-term investments in lei instruments should not be encouraged by eliminating the existing legal restrictions.

24. In the context of the recent rapid decline in nominal interest rates, understandings were reached that their further reduction needed to be postponed until after the tightening in the fiscal and quasi fiscal stance has become effective. It was also agreed that, should substantial pressures on the external position develop, the NBR would defend the inflation objective and the exchange rate primarily by increasing interest rates; interventions in the foreign exchange market would be limited, with a view to safeguarding reserves.

25. The monetary program reflects money demand projections consistent with nominal GDP growth and a continuing gradual remonetization. Broad money is projected to increase by 5½ percent in real terms (Table 4). The program also cautiously assumes that the government will reduce its borrowing from non-banks, and that the commercial banks will increase their net foreign assets to cover part of the growth in their liabilities for foreign currency deposits. As a result, credit to the private sector (both lei and foreign currency denominated) can grow by about 7 percent in real terms. Reserve money is prudently projected to increase by only 3 percent in real terms. Based on this, the NDA ceiling for the NBR is set to allow the targeted increase in NFA equivalent to US$500 million, and in the official reserves of US$600 million.

Table 4

Romania: Monetary Survey, 2000-2002

(In billions of lei, current exchange rates)

Sources: Romanian authorities; and Fund staff estimates.

Bonds issued to restructure Bancorex and Banca Agricola.

Adjusted for write-offs in the last 12 months. Owing to the large-scale write-offs and reclassifications, credit growth rates are estimated.

All changes are 12-month rates of change, unless otherwise indicated.

Real lei credit growth and foreign currency credit growth, weighted by their respective shares.

Romania: Balance sheet of the National Bank, 2000-2002 1/

(In billions of lei, fixed exchange rates, monthly average)

Sources: Romanian authorities; and Fund stall estimates.

For the program, all values are defined on a monthly average basis.

Program definition excludes deposits of commercial banks to meet required reserves against foreign currency deposits. These figures differ from those in the monetary survey by this adjustment, and due to the fact that these figures describe monthly average levels.

From December of the previous year.

Adjusted for both (i) shortfalls in reported reserve money and (ii) changes in minimum reserve requirements.

  • (i) Shortfalls in reported reserve money occured in 1999 and early 2000 owing to failure of some banks to observe the reserve requirements. Small deficiencies persisted throughout 2000 and 2001 and are assumed to disappear after Ql’2002

  • (ii) Minimum reserve requirement for lei deposits was increased from 15 percent to 20 percent in mid-July, to 25 percent on November 1, and to 30 percent on December 1, 1999. In 2001, it was decreased to 27 percent on July 1 and further to 25 percent on October 1.