Abstract
This paper assesses Romania’s First and Second Reviews Under the Stand-By Arrangement (SBA), Request for Waivers, and Modification of Performance Criterion. The authorities have so far achieved the main macroeconomic objectives of the program supported by the SBA; the results now need to be consolidated and sustained. The program was designed with a view to reducing inflation while preserving growth and containing the current account deficit. The IMF staff considers that the government’s revised program deserves support. The government has also confirmed its commitment to the program through the adoption of important corrective measures.
This statement provides information that has become available since the issuance of the staff report for the first and second reviews under the Stand-By Arrangement and request for waiver and modification of performance criterion for Romania (EBS/02/150). The statement does not change the appraisal in the staff report.
The July inflation outcome was favorable, with the 12-month inflation rate falling to 23 percent (19.3 percent for CPI excluding administered prices). The end-year inflation is thus very likely to be lower than the program target of 22 percent and could even fall below the authorities’ revised forecast of 21 percent. Indicators for the second quarter of 2002 show a continuing pick-up in economic activity, with industrial production rising by 4.1 percent relative to the same period of 2001, and exports increasing by 17.5 percent, in U.S. dollar terms. The current account deficit for the first half of 2002 was 2.0 percent of projected annual GDP, somewhat higher than estimated in the staff report, owing to lower transfer receipts and somewhat higher dividend payments. The staff believes that these deviations are transitory and that there is no need to revise the annual program target of 5.1 percent of GDP.
As of August 18, gross foreign reserves of the National Bank of Romania (NBR) totaled US$6.3 billion (3.9 months of prospective annual imports), compared with US$4.9 billion at end-2001. The expansion of credit to the nongovernment sector slowed somewhat in July, to about 28 percent in real terms, inter alia reflecting the effects of enhanced supervision.
The June indicative targets on the ceiling on the issuance of domestic guarantees and assumption of enterprise debt to banks by the government was met. The target on the overall wage bill of the monitored group of state-owned companies was exceeded by 2.1 percent, as projected in the staff report, despite reducing employment by about % percent more than envisaged under the program. On the structural side, the authorities have privatized two large companies since end-June and expect to sell another five such companies by end-September.