IMF Completes Second Review Under Stand-By Arrangement with Romania

Although the economic growth of Romania has resumed, it has boosted downside risks. However, the country has continued its strong performance under the new program in strengthening macroeconomic policies, accelerating structural reforms, and consolidating economic development. In conclusion, the authorities concur that the current precautionary Stand-By Arrangement (SBA) will provide additional security against unforeseen shocks, thereby setting the stage for strong and sustainable economic development while maintaining external and internal stability and thereby achieving the fiscal goals for 2012.

Abstract

Although the economic growth of Romania has resumed, it has boosted downside risks. However, the country has continued its strong performance under the new program in strengthening macroeconomic policies, accelerating structural reforms, and consolidating economic development. In conclusion, the authorities concur that the current precautionary Stand-By Arrangement (SBA) will provide additional security against unforeseen shocks, thereby setting the stage for strong and sustainable economic development while maintaining external and internal stability and thereby achieving the fiscal goals for 2012.

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Romania’s economic performance under a program supported by a 24-month Stand-By Arrangement (SBA). The authorities have indicated that they will continue treating the arrangement as precautionary and therefore do not intend to draw under it.

The SBA was approved on March 25, 2011 (Press Release No 11/101) in the amount of SDR 3,090.6 million (about €3,561 million1 or about US$4,854 million). The SBA came into effect on March 31, 2011. Completion of the review makes an additional amount equivalent to SDR 430 million (about €495 million or about US$675 million) available for disbursement, bringing the total resources that are currently available to Romania under the SBA to SDR 920 million (about €1,060 million or about US$1,445 million)

Following the Executive Board’s discussion on Romania, Mr. David Lipton, First Deputy Managing Director and Acting Chair, stated:

“Romania has made good progress under the new Stand-by arrangement. Policy implementation has remained strong and all performance criteria were met. The authorities’ commitment to continued reform has helped restore market confidence and economic stability. Steadfast commitment to the economic reform agenda is crucial to safeguard these economic gains and better withstand shocks in an uncertain global environment.

“The authorities are on track to meet their fiscal targets for 2011. However, achieving the deficit target for 2012 remains challenging. More comprehensive action is needed to secure the financial sustainability of the health care sector. Faster progress is also needed to improve Romania’s capacity to absorb EU funds. Deeper reform of state-owned enterprises—together with enhanced regulation and improved market-oriented pricing—will be essential to improve economic efficiency and boost growth.

“The banking system remains liquid and well-capitalized, but risks have risen due to difficulties elsewhere in Europe, and increased supervisory vigilance is warranted. Enhanced monitoring and detailed contingency plans—including procedures for using the newly enhanced bank resolution powers—are needed to guard against possible contagion. Monetary policy remains appropriately cautious in light of lingering inflation risks”, Mr. Lipton said.

Romania: Second Review under the Stand-By Arrangement and Request for Modification of Performance Criteria-Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Romania.
Author: International Monetary Fund