Abstract
The comprehensive program supported by the IMF, the European Union, and the World Bank has helped Romania in stabilizing its economy, reversing imbalances, rebuilding confidence of international financial markets, and setting a sustainable economic growth. Executive Directors appreciated the authorities’ monetary and financial sector policies, which have been prudent and proactive in preserving financial stability during the crisis. Directors appreciated the strong economic performance of Romania under the program and approved a waiver to maintain the reform momentum and provide additional security against unforeseen shock.
1. This supplement provides an update on economic and policy developments since the issuance of the staff report on December 23, 2010 (EBS/10/241). The additional information does not change the thrust of the staff appraisal.
2. Recent indicators confirm that the economy is stabilizing. Data to October suggest stabilizing of activity in the fourth quarter across a broad range of activities, including retail sales, construction, and industrial production, in line with staff expectations. This reflected the aftereffects on demand from the austerity measures. Inflation was marginally down in November (7.7 percent). Unemployment continued to decline, reflecting a declining participation rate rather than improvements in the labor market.
Selected High Frequency Indicators
(SA indices, 2005=100)
Citation: IMF Staff Country Reports 2011, 020; 10.5089/9781455213788.002.A002
3. All prior actions for the sixth review have been met (Table 2, revised). Parliament approved the agreed 2011 budget, the unified wage reform legislation, and an amended version of the ordinance on credit contracts that improves the transparency of lending practices and protects consumer rights while safeguarding the stability of the financial system. The 24 percent VAT rate was also ratified by parliament in the context of the 2011 budget. The pension reform was promulgated at end-December and will come into force in 2011. Finally, arrears of the central government and social security were brought below 250 million lei, as agreed.
Romania: Quantitative Program Targets – revised
The December 2008 figure is a stock. The September and December 2010 program targets are adjusted for the shortfall in EC/World Bank disbursements.
Performance criterion for January 2011 and indicative target for March 2011 are relative to December 2010 target.
Cumulative figure during calendar year (e.g. March 2011 figure is cumulative from January 1, 2011).
In accordance with TMU, the end-September program target was adjusted from the original target of -28,200 by one-half of the revenue over-performance.
The target for March 2011 can be adjusted with higher or lower capital spending as defined in TMU.
Romania: Quantitative Program Targets – revised
| 2008 | 2009 | 2010 | 2011 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec | March | June | Sept | Dec | March | June | Sept | Dec | January | March | ||||||
| Actual | Actual | Actual | Actual | Actual | Actual | Actual | Prog. | Actual | Prog. | Actual | Perf. crit. | Indicative | ||||
| I. Quantitative Performance Criteria | ||||||||||||||||
| 1. Change in net foreign assets (mln euros) 1/ 2/ | 25,532 | -3,500 | -5,119 | -4,566 | -4,874 | 779 | -509 | -2,350 | -319 | -3,950 | -750 | 0 | 350 | |||
| 2. Floor on general government overall balance (mln lei) 3/4/5/ | -24,655 | -8,300 | -14,456 | -25,563 | -36,101 | -8,422 | -18,015 | 27,505 | 23,732 | -34,650 | … | -6,300 | ||||
| 3. Stock in general government arrears (bn lei) | 1.06 | 1.41 | 1.55 | 1.4 | 1.50 | 1.76 | 1.8 | 0.81 | 1.57 | 0.48 | … | 0 | ||||
| 4. Ceiling on general government guarantees issued since start of program (face value, bn lei) | … | … | 0.02 | 0.8 | 2.2 | 4.6 | 5.5 | 12.0 | 6.5 | 12.0 | … | 12.0 | ||||
| II. Continuous Performance Criterion | ||||||||||||||||
| 5. Nonaccumulation of external debt arrears | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | … | 0 | ||||
| III. Inflation Consultation | ||||||||||||||||
| 6. 12-month rate of inflation in consumer prices | ||||||||||||||||
| Outer band (upper limit) | … | … | 8.4 | 7.7 | 6.5 | 6.5 | 6.0 | 10.0 | 10.0 | … | 9.0 | |||||
| Inner band (upper limit) | … | … | 7.4 | 6.7 | 5.5 | 5.5 | 5.0 | 9.0 | 9.0 | … | 8.0 | |||||
| Actual/Center point | 6.3 | 6.7 | 5.9 | 4.8 | 4.7 | 4.2 | 4.4 | 8.0 | 7.8 | 8.0 | … | 7.0 | ||||
| Inner band (lower limit) | 5.4 | 4.7 | 3.5 | 3.5 | 3.0 | 7.0 | 7.0 | … | 6.0 | |||||||
| Outer band (lower limit) | 4.4 | 3.7 | 2.5 | 2.5 | 2.0 | 6.0 | 6.0 | … | 5.0 | |||||||
| IV. Indicative Target | ||||||||||||||||
| 7. General government current primary spending (excl. EU funds and social assistance, mln lei) 3/ | 92,327 | 22,149 | 43,238 | 63,878 | 85,637 | 32,749 | 66,124 | 100,000 | 98,721 | 131,500 | … | 32,200 | ||||
| 8. Operating balance (earnings before interest and tax) net of subsidies of 10 SOEs, defined in TMU (mln. lei) 3/ | -1,081 | -2,333 | -3,000 | -3,801 | -4,000 | … | -750 | |||||||||
| Memorandum Item: | ||||||||||||||||
| Revenue of general government, net of EU funds (mln. lei) 3/ | … | … | … | … | 151,508 | 36,355 | 74,669 | 114,700 | 116,091 | 157,950 | … | 40,100 | ||||
The December 2008 figure is a stock. The September and December 2010 program targets are adjusted for the shortfall in EC/World Bank disbursements.
Performance criterion for January 2011 and indicative target for March 2011 are relative to December 2010 target.
Cumulative figure during calendar year (e.g. March 2011 figure is cumulative from January 1, 2011).
In accordance with TMU, the end-September program target was adjusted from the original target of -28,200 by one-half of the revenue over-performance.
The target for March 2011 can be adjusted with higher or lower capital spending as defined in TMU.
Romania: Quantitative Program Targets – revised
| 2008 | 2009 | 2010 | 2011 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec | March | June | Sept | Dec | March | June | Sept | Dec | January | March | ||||||
| Actual | Actual | Actual | Actual | Actual | Actual | Actual | Prog. | Actual | Prog. | Actual | Perf. crit. | Indicative | ||||
| I. Quantitative Performance Criteria | ||||||||||||||||
| 1. Change in net foreign assets (mln euros) 1/ 2/ | 25,532 | -3,500 | -5,119 | -4,566 | -4,874 | 779 | -509 | -2,350 | -319 | -3,950 | -750 | 0 | 350 | |||
| 2. Floor on general government overall balance (mln lei) 3/4/5/ | -24,655 | -8,300 | -14,456 | -25,563 | -36,101 | -8,422 | -18,015 | 27,505 | 23,732 | -34,650 | … | -6,300 | ||||
| 3. Stock in general government arrears (bn lei) | 1.06 | 1.41 | 1.55 | 1.4 | 1.50 | 1.76 | 1.8 | 0.81 | 1.57 | 0.48 | … | 0 | ||||
| 4. Ceiling on general government guarantees issued since start of program (face value, bn lei) | … | … | 0.02 | 0.8 | 2.2 | 4.6 | 5.5 | 12.0 | 6.5 | 12.0 | … | 12.0 | ||||
| II. Continuous Performance Criterion | ||||||||||||||||
| 5. Nonaccumulation of external debt arrears | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | … | 0 | ||||
| III. Inflation Consultation | ||||||||||||||||
| 6. 12-month rate of inflation in consumer prices | ||||||||||||||||
| Outer band (upper limit) | … | … | 8.4 | 7.7 | 6.5 | 6.5 | 6.0 | 10.0 | 10.0 | … | 9.0 | |||||
| Inner band (upper limit) | … | … | 7.4 | 6.7 | 5.5 | 5.5 | 5.0 | 9.0 | 9.0 | … | 8.0 | |||||
| Actual/Center point | 6.3 | 6.7 | 5.9 | 4.8 | 4.7 | 4.2 | 4.4 | 8.0 | 7.8 | 8.0 | … | 7.0 | ||||
| Inner band (lower limit) | 5.4 | 4.7 | 3.5 | 3.5 | 3.0 | 7.0 | 7.0 | … | 6.0 | |||||||
| Outer band (lower limit) | 4.4 | 3.7 | 2.5 | 2.5 | 2.0 | 6.0 | 6.0 | … | 5.0 | |||||||
| IV. Indicative Target | ||||||||||||||||
| 7. General government current primary spending (excl. EU funds and social assistance, mln lei) 3/ | 92,327 | 22,149 | 43,238 | 63,878 | 85,637 | 32,749 | 66,124 | 100,000 | 98,721 | 131,500 | … | 32,200 | ||||
| 8. Operating balance (earnings before interest and tax) net of subsidies of 10 SOEs, defined in TMU (mln. lei) 3/ | -1,081 | -2,333 | -3,000 | -3,801 | -4,000 | … | -750 | |||||||||
| Memorandum Item: | ||||||||||||||||
| Revenue of general government, net of EU funds (mln. lei) 3/ | … | … | … | … | 151,508 | 36,355 | 74,669 | 114,700 | 116,091 | 157,950 | … | 40,100 | ||||
The December 2008 figure is a stock. The September and December 2010 program targets are adjusted for the shortfall in EC/World Bank disbursements.
Performance criterion for January 2011 and indicative target for March 2011 are relative to December 2010 target.
Cumulative figure during calendar year (e.g. March 2011 figure is cumulative from January 1, 2011).
In accordance with TMU, the end-September program target was adjusted from the original target of -28,200 by one-half of the revenue over-performance.
The target for March 2011 can be adjusted with higher or lower capital spending as defined in TMU.
Romania: Performance for Sixth Review and Proposed New Conditionality – revised
Romania: Performance for Sixth Review and Proposed New Conditionality – revised
| Measure | Target Date | Comment | ||
|---|---|---|---|---|
| Prior actions | ||||
| 1. Parliamentary approval of the agreed 2011 budget, including ratification of the 24 percent VAT rate | Met, parliamentary approval on December 22 | |||
| 2. Ensuring central government and social security arrears at near zero at end-November 2010 | Met | |||
| 3. Approval of the unified public wage legislation | Met, parliamentary approval on December 20 | |||
| 4. Enactment of the pension reform | Met, legislation published on December 20 | |||
| 5. Amending ordinance on credit contracts so that it improves transparency and protects consumer rights while safeguarding the stability of the financial system. | Met, parliamentary approval on December 23 | |||
| Quantitative performance criteria | ||||
| 1. Floor on net foreign assets | September, 2010 | Met | ||
| 2. Floor on general government overall balance | September, 2010 | Met | ||
| 3. Ceiling on general government guarantees | September, 2010 | Met | ||
| 4. Ceiling on general government domestic arrears | September, 2010 | Missed | ||
| 5. Non-accumulation of external debt arrears | September, 2010 | Met | ||
| Quantitative Indicative Target | ||||
| 1. Ceiling on general government current primary spending | September, 2010 | Met | ||
| 2. An indicative target on the operating balance of ten largest loss-making SOEs | September, 2010 | Missed | ||
| Inflation consultation band | ||||
| Inner band | September, 2010 | Met | ||
| Outer band | September, 2010 | Met | ||
| Structural benchmarks | ||||
| 1. Approval of reforms to mitigate fiscal risks from local governments | September 30, 2010 | Met in June 2010 | ||
| 2. Reform of the DGF’s funding regime through increase in bank’s contribution rates and elimination of stand-by credit lines, and review of DGF governance arrangement | September 30, 2010 | Met; the reform of the governance arrangement modified to end-December 2010, amended by emergency ordinance on December 28 | ||
| 3 Parliamentary ratification of the fiscal measures approved by the government | September 30, 2010 | Partially met, VAT ratification reset as prior action | ||
| 4 Passage of framework and implementing legislation for the unified wage law | October 31, 2010 | Not met, reset as prior action | ||
| 5 Reform tax administration methodology for high net wealth individuals | November 30, 2010 | Met after reset to December 31, 2010; emergency ordinance approved on December 23 | ||
| 6 Parliamentary ratification of amendments to the bank resolution framework | December 1, 2010 | Partially met | ||
| 7. Parliamentary approval of agreed 2011 budget | December 15, 2010 | Reset as prior action | ||
| 8. Amend deposit insurance legislation to ensure that neither members of the board nor employees of credit institutions participate in the DGF Board | December 31, 2010 | Met; amendment approved as emergency ordinance on December 28 | ||
| 9. First phase to integrate the accounting reporting system with the Treasury payment system | March 31, 2011 | Modified and reset for March 15, 2011 | ||
| Proposed structural benchmarks | ||||
| 10. Amend legislation to allow the use of the deposit guarantee fund resources to facilitate bank restructuring, including purchase and assumption transactions | March 15, 2011 | |||
Romania: Performance for Sixth Review and Proposed New Conditionality – revised
| Measure | Target Date | Comment | ||
|---|---|---|---|---|
| Prior actions | ||||
| 1. Parliamentary approval of the agreed 2011 budget, including ratification of the 24 percent VAT rate | Met, parliamentary approval on December 22 | |||
| 2. Ensuring central government and social security arrears at near zero at end-November 2010 | Met | |||
| 3. Approval of the unified public wage legislation | Met, parliamentary approval on December 20 | |||
| 4. Enactment of the pension reform | Met, legislation published on December 20 | |||
| 5. Amending ordinance on credit contracts so that it improves transparency and protects consumer rights while safeguarding the stability of the financial system. | Met, parliamentary approval on December 23 | |||
| Quantitative performance criteria | ||||
| 1. Floor on net foreign assets | September, 2010 | Met | ||
| 2. Floor on general government overall balance | September, 2010 | Met | ||
| 3. Ceiling on general government guarantees | September, 2010 | Met | ||
| 4. Ceiling on general government domestic arrears | September, 2010 | Missed | ||
| 5. Non-accumulation of external debt arrears | September, 2010 | Met | ||
| Quantitative Indicative Target | ||||
| 1. Ceiling on general government current primary spending | September, 2010 | Met | ||
| 2. An indicative target on the operating balance of ten largest loss-making SOEs | September, 2010 | Missed | ||
| Inflation consultation band | ||||
| Inner band | September, 2010 | Met | ||
| Outer band | September, 2010 | Met | ||
| Structural benchmarks | ||||
| 1. Approval of reforms to mitigate fiscal risks from local governments | September 30, 2010 | Met in June 2010 | ||
| 2. Reform of the DGF’s funding regime through increase in bank’s contribution rates and elimination of stand-by credit lines, and review of DGF governance arrangement | September 30, 2010 | Met; the reform of the governance arrangement modified to end-December 2010, amended by emergency ordinance on December 28 | ||
| 3 Parliamentary ratification of the fiscal measures approved by the government | September 30, 2010 | Partially met, VAT ratification reset as prior action | ||
| 4 Passage of framework and implementing legislation for the unified wage law | October 31, 2010 | Not met, reset as prior action | ||
| 5 Reform tax administration methodology for high net wealth individuals | November 30, 2010 | Met after reset to December 31, 2010; emergency ordinance approved on December 23 | ||
| 6 Parliamentary ratification of amendments to the bank resolution framework | December 1, 2010 | Partially met | ||
| 7. Parliamentary approval of agreed 2011 budget | December 15, 2010 | Reset as prior action | ||
| 8. Amend deposit insurance legislation to ensure that neither members of the board nor employees of credit institutions participate in the DGF Board | December 31, 2010 | Met; amendment approved as emergency ordinance on December 28 | ||
| 9. First phase to integrate the accounting reporting system with the Treasury payment system | March 31, 2011 | Modified and reset for March 15, 2011 | ||
| Proposed structural benchmarks | ||||
| 10. Amend legislation to allow the use of the deposit guarantee fund resources to facilitate bank restructuring, including purchase and assumption transactions | March 15, 2011 | |||
4. Two additional structural benchmarks due by end-2010 have been met. First, the deposit insurance legislation has been amended to ensure that neither members of the board nor employees of credit institutions can participate in the Board of the Deposit Guarantee Fund, with a view to avoiding conflict of interest. Second, a government ordinance amending the Fiscal Procedures Code was passed at end-December to give tax administration additional powers to better tackle taxation of high net wealth individuals.
5. The end-December NFA PC was met with a considerable margin. NFA totaled €19.9 billion, compared with the adjusted target of €16.7 billion. Preliminary data on the fiscal outturn for end-December also suggests that the end-December fiscal deficit target was likely met with a margin of some RON 1 billion (0.2 percent of GDP).
