Abstract
Romania's macroeconomic performance remains broadly in line with the program, but the recent strengthening of domestic demand and nonobservance of four performance criteria require corrective measures. Discussions on policies for 2003 took place in the context of increasing risks stemming from unfavorable external developments, accelerating domestic demand, and a widening of the current account deficit. IMF staff noted the delay in preparing the privatization strategy for the energy sector, and encouraged the authorities to make every effort to complete the privatization of the energy sector.
October 15, 2003
1. This statement summarizes information that has become available since the issuance of the staff report for the fourth review under the Stand-by Arrangement and request for waiver of performance criteria. The statement does not change the appraisal in the report.
2. Recently released macroeconomic data are broadly in line with projections in the staff report:
Industrial production in July-August rose about 6 percent year-on-year, suggesting that the weakness earlier in the year was temporary and that GDP growth prospects remain in line with program projections, at about 4.5-4.7 percent.
Inflation in September was 2.1 percent, raising the 12-month rate to 15.9 percent. The administered prices, including for electricity and gas, contributed about VA percentage points to September inflation, suggesting that underlying inflation remains in line with the program target.
Real net wage growth in state-owned enterprises (SOEs) moderated to 4.2 percent year-on-year in August, dropping below economy-wide average wage growth for the second month in a row.
The general government budget deficit was contained to 0.7 percent of GDP in January-August, reflecting improved revenue performance in Q3 and continuing expenditure restraint.
The indicative end-September targets for NFA and NDA of the National Bank of Romania were met. However, commercial bank credit to the private sector continued to expand unabated, with the 12-months real growth rate reaching 49 percent in August, mainly driven by consumer and mortgage loans to households. In response, the NBR increased its interest rate by another percentage point to 21¾ percent on October 6. The authorities are also reviewing the implications for insurance companies of their increasing exposure to consumer credit risk.
The current account deficit for the seven months through July reached 2.8 percent of GDP, in line with the annual estimate of 4.8 percent of GDP. The trade deficit in August was in line with program projections.
S&P upgraded Romania one notch to BB on September 17, 2003.
3. The decision on the additional 4 percent gas price increase was published on October 10 and will become effective on November 1. By October 7, 2003, 16,520 employees of the railway companies were laid off, about 400 more than reported in the staff report. The prior action on the privatization of Roman and ARO was met with a delay of one day, although some uncertainties remain whether all units of the former will eventually be managed by private investors. The Privatization Agency shortlisted 11 investors interested in acquiring a majority share in Petrom.
4. Following the approval of the Operational Guidance for Assessments of Countries with a Longer-Term Program Engagement, staff has started work on an ex-post assessment of the current stand-by arrangement. The assessment will be summarized in the next staff report presented to the Executive Board by April 2004, on either a possible request for UFR or the next Article IV discussions.