Abstract
This paper discusses Romania’s Seventh and Eighth Reviews Under the Stand-by Arrangement and Request for Waiver of Nonobservance of Performance Criteria. Continued strong fiscal consolidation would enable Romania to exit the EU Excessive Deficit Procedure by mid-2013; prudent monetary policy kept core inflation low, and close supervision buttressed banking sector stability. Fiscal and international reserves buffers and a well-capitalized banking sector provide a cushion against shocks. Market sentiment toward Romania improved as political uncertainty subsided in the aftermath of the December 2012 parliamentary elections, which the ruling coalition won. Structural reforms, however, advanced slowly, and the recovery has lagged behind that in most other European emerging economies.
1. This supplement provides an update on economic and policy developments since the issuance of the staff report on June 12, 2013. The additional information does not change the thrust of the staff appraisal.
2. Recent indicators suggest continued positive growth. Preliminary estimates for 2013:Q1 show a 0.7 percent real GDP increase (2.2 percent y-o-y), slightly better than expected. The expansion was driven by a rebound in exports, while domestic demand remained sluggish. High-frequency indicators for April also suggest that industrial production and retail trade continue to record solid growth.
3. Annual inflation remained flat at 5.3 percent in May. This rate was slightly higher than expected, reflecting the impact of renewed volatile food and fuel price increases. At the same time, core inflation fell to 1.9 percent.1
4. In line with regional trends, Romanian asset prices have pulled back somewhat over the last several weeks due in large part to global market pressures. Romania’s EMBIG and CDS spreads have widened by 60 and 41 basis points, respectively, since the U.S. Federal Reserve Chairman suggested on May 22 that the U.S. Federal Reserve could soon start to scale back its asset purchases. The leu has also depreciated against the euro by 3.5 percent since then and by 1.6 percent this year.
5. The government has completed the outstanding prior actions. Central government arrears were reduced to RON 0.019 billion and local government arrears were reduced to RON 0.151 billion as of May 31. On June 20, the government selected the winning strategic investor for the sale of the majority stake in the capital of the state-owned freight railway company (CFR Marfa) and the sale-purchase agreement was initialed on June 21, 2013.
6. Progress continues to be made on the fiscal structural benchmarks that were not met. The authorities have completed a draft specification on the structural architecture of the accounting and treasury reporting system. Progress was also made towards meeting the structural benchmark on identifying priority local government projects cofinanced by the central government. While the lists of the priority projects that are funded in 2013-14 and that would be funded in the future were published, a list of low-priority projects to be discontinued has not yet been published. For increased transparency, and consistent with the structural benchmark, the low-priority projects that will no longer be financed through the central government should also be published and further effort is also needed to identify projects that will be funded through EU sources.
Romania: Quantitative Program Targets
The end-December 2010 figure is a stock.
The September 2012 target is adjusted downward by 67 million Euros to reflect less than projected Eurobond placement of the MoPF, and the target is adjusted upward by 50 million Euros to reflect higher than projected commercial bank reserve requirement held with the NBR. The December 2012 target is adjusted upward by 1,433 million Euros to reflect more than projected Eurobond placement of the MoPF.
Cumulative figure during calendar year (e.g. September 2011 figure is cumulative from January 1, 2011). The September 2012 deficit target is adjusted by RON 770 million to RON 10,470 million for the loan to CFR Infrastructura. Actual data is adjusted for PNDI (67.5 mill. RON), the loan to CFR Infratsructura (770 mill. RON) and the EU cash accrual gap (239 mill. RON) for end-September. For end-December, actual data includes PNDI (210 million RON) and EU cash accrual gap (2447 million RON).
Cumulative figure during calendar year (e.g. March 2012 figure is cumulative from January 1, 2012).
Romania: Quantitative Program Targets
| 2010 | 2011 | 2012 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec | March | June | Sept | Dec | March | June | Sept | Sept | Dec | Dec | |||
| Actual | Actual | Actual | Actual | Actual | Actual | Actual | Prog. | Actual | Prog. | Actual | |||
| I. Quantitative Performance Criteria | |||||||||||||
| 1. Floor on the change in net foreign assets (mln euros)1/2/ | 20,026 | 119 | 1896 | 292.8 | -457 | 1696 | -457 | -267 | -243 | 633 | -317 | ||
| 2. Floor on general government overall balance (mln lei)3/ | -33,621 | -5,254 | -11,260 | -13,685 | -23,837 | -3,421 | -7631 | -10,470 | -8,257 | -14,770 | -17,430 | ||
| 3. Ceiling on stock of central government and social security arrears (bn lei) | 0.19 | 0.15 | 0.11 | 0.10 | 0.09 | 0.14 | 0.15 | 0.04 | 0.18 | 0.02 | 0.027 | ||
| 4. Ceiling on general government guarantees issued since end-2008 (face value, bn lei) | 7.6 | 8.1 | 6.0 | 5.8 | 6.5 | 7.0 | 7.7 | 14.0 | 8.3 | 14.0 | 9.8 | ||
| 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) | … | … | … | … | … | … | … | 5.9 | … | 5.6 | … | ||
| Inner band (upper limit) | … | … | … | … | … | … | … | 4.9 | … | 4.6 | … | ||
| Actual/Center point | 8.0 | 8.0 | 7.9 | 3.5 | 3.1 | 2.4 | 2.0 | 3.9 | 5.3 | 3.6 | 5.0 | ||
| Inner band (lower limit) | … | … | … | … | … | … | … | 2.9 | … | 2.6 | … | ||
| Outer band (lower limit) | … | … | … | … | … | … | … | 1.9 | … | 1.6 | … | ||
| IV. Indicative Target | |||||||||||||
| 7. Ceiling on general government current primary spending (excl. EU funds and social assistance, mln lei) | 131,938 | 30,670 | 62,578 | 94,133 | 128,317 | 30,921 | 63,968 | 99,000 | 96,595 | 133,700 | 134,330 | ||
| 8. Floor on operating balance (earnings before interest and tax, net of subsidies) of key SOEs (as defined in TMU (bn. lei))4/ | -6.8 | -0.7 | -1.8 | -2.4 | -2.0 | -0.4 | 1.4 | -2.7 | -2.3 | -3.2 | -2.2 | ||
| 9. Ceiling on stock of arrears of key SOEs (as defined in TMU (bn lei)) | 17.9 | 19.2 | 19.7 | 18.5 | 14.9 | 16.2 | 12.4 | 12.4 | 12.7 | 8.9 | 11.5 | ||
| 10. Ceiling on stock of local government arrears (bn lei) | 0.91 | 0.82 | 0.81 | 0.82 | 0.75 | 0.82 | 1.17 | 0.75 | 1.32 | 0.30 | 0.84 | ||
| 11. Ceiling on the execution of the PNDI program (mln lei)4/ | … | … | … | … | … | 66 | 67 | 700 | 67 | 1,000 | 210 | ||
The end-December 2010 figure is a stock.
The September 2012 target is adjusted downward by 67 million Euros to reflect less than projected Eurobond placement of the MoPF, and the target is adjusted upward by 50 million Euros to reflect higher than projected commercial bank reserve requirement held with the NBR. The December 2012 target is adjusted upward by 1,433 million Euros to reflect more than projected Eurobond placement of the MoPF.
Cumulative figure during calendar year (e.g. September 2011 figure is cumulative from January 1, 2011). The September 2012 deficit target is adjusted by RON 770 million to RON 10,470 million for the loan to CFR Infrastructura. Actual data is adjusted for PNDI (67.5 mill. RON), the loan to CFR Infratsructura (770 mill. RON) and the EU cash accrual gap (239 mill. RON) for end-September. For end-December, actual data includes PNDI (210 million RON) and EU cash accrual gap (2447 million RON).
Cumulative figure during calendar year (e.g. March 2012 figure is cumulative from January 1, 2012).
Romania: Quantitative Program Targets
| 2010 | 2011 | 2012 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec | March | June | Sept | Dec | March | June | Sept | Sept | Dec | Dec | |||
| Actual | Actual | Actual | Actual | Actual | Actual | Actual | Prog. | Actual | Prog. | Actual | |||
| I. Quantitative Performance Criteria | |||||||||||||
| 1. Floor on the change in net foreign assets (mln euros)1/2/ | 20,026 | 119 | 1896 | 292.8 | -457 | 1696 | -457 | -267 | -243 | 633 | -317 | ||
| 2. Floor on general government overall balance (mln lei)3/ | -33,621 | -5,254 | -11,260 | -13,685 | -23,837 | -3,421 | -7631 | -10,470 | -8,257 | -14,770 | -17,430 | ||
| 3. Ceiling on stock of central government and social security arrears (bn lei) | 0.19 | 0.15 | 0.11 | 0.10 | 0.09 | 0.14 | 0.15 | 0.04 | 0.18 | 0.02 | 0.027 | ||
| 4. Ceiling on general government guarantees issued since end-2008 (face value, bn lei) | 7.6 | 8.1 | 6.0 | 5.8 | 6.5 | 7.0 | 7.7 | 14.0 | 8.3 | 14.0 | 9.8 | ||
| 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) | … | … | … | … | … | … | … | 5.9 | … | 5.6 | … | ||
| Inner band (upper limit) | … | … | … | … | … | … | … | 4.9 | … | 4.6 | … | ||
| Actual/Center point | 8.0 | 8.0 | 7.9 | 3.5 | 3.1 | 2.4 | 2.0 | 3.9 | 5.3 | 3.6 | 5.0 | ||
| Inner band (lower limit) | … | … | … | … | … | … | … | 2.9 | … | 2.6 | … | ||
| Outer band (lower limit) | … | … | … | … | … | … | … | 1.9 | … | 1.6 | … | ||
| IV. Indicative Target | |||||||||||||
| 7. Ceiling on general government current primary spending (excl. EU funds and social assistance, mln lei) | 131,938 | 30,670 | 62,578 | 94,133 | 128,317 | 30,921 | 63,968 | 99,000 | 96,595 | 133,700 | 134,330 | ||
| 8. Floor on operating balance (earnings before interest and tax, net of subsidies) of key SOEs (as defined in TMU (bn. lei))4/ | -6.8 | -0.7 | -1.8 | -2.4 | -2.0 | -0.4 | 1.4 | -2.7 | -2.3 | -3.2 | -2.2 | ||
| 9. Ceiling on stock of arrears of key SOEs (as defined in TMU (bn lei)) | 17.9 | 19.2 | 19.7 | 18.5 | 14.9 | 16.2 | 12.4 | 12.4 | 12.7 | 8.9 | 11.5 | ||
| 10. Ceiling on stock of local government arrears (bn lei) | 0.91 | 0.82 | 0.81 | 0.82 | 0.75 | 0.82 | 1.17 | 0.75 | 1.32 | 0.30 | 0.84 | ||
| 11. Ceiling on the execution of the PNDI program (mln lei)4/ | … | … | … | … | … | 66 | 67 | 700 | 67 | 1,000 | 210 | ||
The end-December 2010 figure is a stock.
The September 2012 target is adjusted downward by 67 million Euros to reflect less than projected Eurobond placement of the MoPF, and the target is adjusted upward by 50 million Euros to reflect higher than projected commercial bank reserve requirement held with the NBR. The December 2012 target is adjusted upward by 1,433 million Euros to reflect more than projected Eurobond placement of the MoPF.
Cumulative figure during calendar year (e.g. September 2011 figure is cumulative from January 1, 2011). The September 2012 deficit target is adjusted by RON 770 million to RON 10,470 million for the loan to CFR Infrastructura. Actual data is adjusted for PNDI (67.5 mill. RON), the loan to CFR Infratsructura (770 mill. RON) and the EU cash accrual gap (239 mill. RON) for end-September. For end-December, actual data includes PNDI (210 million RON) and EU cash accrual gap (2447 million RON).
Cumulative figure during calendar year (e.g. March 2012 figure is cumulative from January 1, 2012).
Romania: Performance for Seventh and Eighth Reviews
Romania: Performance for Seventh and Eighth Reviews
| Measure | Target Date | Comment | ||
|---|---|---|---|---|
| Prior actions | ||||
| 1. Reduce central government arrears to RON 0.02 billion. | Met | |||
| 2. Reduce local government arrears to RON 0.3 billion. | Met | |||
| 3. Initial a sale-purchase agreement with the winning strategic investor for the sale of the majority stake in the capital of CFR Marfa. | Met | |||
| 4. Launch the tender for a secondary public offering of 15 percent of the government shares in Transgaz. | Met | |||
| 5. Sign a contract with a transaction advisor for an initial public offering of 15 percent of the share capital of Oltenia. | Met | |||
| Quantitative performance criteria | ||||
| 1. Floor on net foreign assets | December 31, 2012 | Not met | ||
| 2. Floor on general government overall balance | December 31, 2012 | Not met | ||
| 3. Ceiling on central government and social security domestic arrears | December 31, 2012 | Not met | ||
| 4. Ceiling on general government guarantees | December 31, 2012 | Met | ||
| 5. Non-accumulation of external debt arrears | December 31, 2012 | Met | ||
| Quantitative Indicative Target | ||||
| 1. Ceiling on general government current primary spending | December 31, 2012 | Not met | ||
| 2. Floor on operating balance of key SOEs | December 31, 2012 | Met | ||
| 3. Ceiling on stock of arrears of key SOEs | December 31, 2012 | Not met | ||
| 4. Ceiling on stock of local government arrears | December 31, 2012 | Not met | ||
| 5. Ceiling on the execution of the PNDI program | December 31, 2012 | Met | ||
| Inflation consultation band | ||||
| Inner band | December 31, 2012 | Exceeded | ||
| Outer band | December 31, 2012 | Met | ||
| Structural benchmarks | ||||
| 1. Update the investment database to identify priority local government projects funded through budgetary and EU funds, and publish a list of low priority projects which will be discontinued. | September 30, 2012 | Not met | ||
| 2. Publish up-to-date financial statements of all public hospitals on a webpage of the Ministry of Health. | October 31, 2012 | Met | ||
| 3. Sign a contract with legal and transaction advisor for the majority privatization of Oltenia. | November 30, 2012 | Not met | ||
| 4. Finalize a detailed definition of the structural architecture of the accounting and treasury reporting system. | December 31, 2012 | Not met | ||
| 5. Hold IPOs of government shares in Romgaz and Hidroelectrica. | March 15, 2013 | Not met | ||
Romania: Performance for Seventh and Eighth Reviews
| Measure | Target Date | Comment | ||
|---|---|---|---|---|
| Prior actions | ||||
| 1. Reduce central government arrears to RON 0.02 billion. | Met | |||
| 2. Reduce local government arrears to RON 0.3 billion. | Met | |||
| 3. Initial a sale-purchase agreement with the winning strategic investor for the sale of the majority stake in the capital of CFR Marfa. | Met | |||
| 4. Launch the tender for a secondary public offering of 15 percent of the government shares in Transgaz. | Met | |||
| 5. Sign a contract with a transaction advisor for an initial public offering of 15 percent of the share capital of Oltenia. | Met | |||
| Quantitative performance criteria | ||||
| 1. Floor on net foreign assets | December 31, 2012 | Not met | ||
| 2. Floor on general government overall balance | December 31, 2012 | Not met | ||
| 3. Ceiling on central government and social security domestic arrears | December 31, 2012 | Not met | ||
| 4. Ceiling on general government guarantees | December 31, 2012 | Met | ||
| 5. Non-accumulation of external debt arrears | December 31, 2012 | Met | ||
| Quantitative Indicative Target | ||||
| 1. Ceiling on general government current primary spending | December 31, 2012 | Not met | ||
| 2. Floor on operating balance of key SOEs | December 31, 2012 | Met | ||
| 3. Ceiling on stock of arrears of key SOEs | December 31, 2012 | Not met | ||
| 4. Ceiling on stock of local government arrears | December 31, 2012 | Not met | ||
| 5. Ceiling on the execution of the PNDI program | December 31, 2012 | Met | ||
| Inflation consultation band | ||||
| Inner band | December 31, 2012 | Exceeded | ||
| Outer band | December 31, 2012 | Met | ||
| Structural benchmarks | ||||
| 1. Update the investment database to identify priority local government projects funded through budgetary and EU funds, and publish a list of low priority projects which will be discontinued. | September 30, 2012 | Not met | ||
| 2. Publish up-to-date financial statements of all public hospitals on a webpage of the Ministry of Health. | October 31, 2012 | Met | ||
| 3. Sign a contract with legal and transaction advisor for the majority privatization of Oltenia. | November 30, 2012 | Not met | ||
| 4. Finalize a detailed definition of the structural architecture of the accounting and treasury reporting system. | December 31, 2012 | Not met | ||
| 5. Hold IPOs of government shares in Romgaz and Hidroelectrica. | March 15, 2013 | Not met | ||
Measured using weights in accordance with the Harmonized Index of Consumer Prices.