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IMF's Shafik: Romania has successfully concluded second of two stand-by arrangements with the IMF

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Romania has successfully concluded the second of two stand-by arrangements with the International Monetary Fund (IMF), but growth is weak and downside risks exist, Nemat Shafik, IMF Deputy Managing Director and Acting Chair, said Thursday following the completion by the Executive Board of the International Monetary Fund (IMF) of the seventh and eighth reviews of Romania's performance under its economic program supported by a 24-month stand-by-arrangement.

'Romania has successfully concluded the second of two Stand-by Arrangements with the Fund. The economy has stabilised. Core inflation remains low, and the fiscal and current account balances are sustainable. However, growth is weak and downside risks exist. Structural reforms are critical to realising Romania's growth potential and creating jobs, while continued fiscal discipline is essential to anchor macroeconomic stability,' said Shafik.

He added that significant fiscal adjustment since 2009 has enabled Romania to exit the EU excessive deficit procedure in June, and that the government's intention to further reduce the structural deficit at a moderate pace to reach its medium-term deficit objective is appropriate.

'The budgetary framework will also benefit from the establishment of an effective commitment control system and strict prioritisation of public investment which would help to avoid recurrence of arrears. Tax administration and healthcare reform along with tax base broadening measures are also needed,' said Shafik.

The IMF official also warned that reform of the energy and transport sectors and of state-owned enterprises remains incomplete. 'The authorities have begun to gradually raise gas and electricity prices and establish a more competitive energy market while taking steps to protect vulnerable consumers. These measures are welcome, but more must be done to reform inefficient state-owned enterprises, including through greater private-sector involvement,' he said.

He also mentioned that Romania's monetary policy stance is broadly appropriate and Romania's banking system is well capitalised, but vulnerable to external shocks. 'Accordingly, the authorities should continue to improve their crisis management arrangements and contingency planning. In particular, further efforts to remove obstacles to the resolution of non-performing loans are needed and corporate governance weaknesses at the new unified financial supervisor should be addressed,' Shafik concluded.

 

 

Voinea: IMF board has declared successful conclusion of Romania's stand-by arrangement with IMF

 

The Executive Board of the International Monetary Fund (IMF) has declared the successful conclusion of a second stand-by arrangement between Romania and the IMF, saying that all the important targets and preconditions have been met, while pointing to the progress of Romania toward macroeconomic stability and on the path to structural reforms, Romania's Minister-delegate for Budget Liviu Voinea said Wednesday night in Brussels.

'It is essential that the Romanian Government managed to reduce arrears, a problem that had been dragging on since the previous arrangement with the IMF in 2009. The target to be met was RON 300 million at the level of local public administrations, but in the end it was reached RON 150 million, much lower that the target. At the same time, the target at the level of the central administration was RON 20 million and it was achieved 19. The privatisations of Transgaz and CFR Marfa were carried through and a consultant was selected for the Oltenia Energy Complex. These were preconditions that were fully met. The majority of other commitments were fulfilled as well, but the preconditions were the most important. The board agreed that overall Romania made big progress toward fiscal consolidation, macroeconomic stability and structural reforms,' Voinea said on the side-lines of an ECOFIN Council meeting in Brussels.

He added that there are some other things to be done that could be considered for a new arrangement, but pointed out that it is remarkable that the on-going arrangement was successfully concluded and Romania met all its commitments. 'This is a signal coming at an excellent tine in the international markets, a time when Romania needed such a positive signal. An arrangement, although extended by three months, from March to June, was officially successfully concluded,' said Voinea.

He added that Romania needs another arrangement with the IMF, mainly to carry through its structural reforms, 'in the relatively recent context of rising funding costs for all countries, not just for Romania.'

'Romania certainly does not have a funding problem now, but it would be a good thing for the international markets if the safety of an arrangement with an international partner were in place,' Voinea concluded.

The Romanian Government has hailed the favourbale decision of the IMF concerning the successful conclusion of a second stand-by arrangement with the IMF following the completion on Wednesday of the seventh and eighth reviews of Romania's performance under its economic program supported by a 24-month stand-by arrangement, Romania's Finance Ministry reported on its website in a press release.Romania has met all five preconditions included in the stand-by arrangement, which were cutting the Government arrears to below RON 20 million and by RON 300 million the arrears of the local public administrations, declaring a winner of the tender for the selling of a majority stake in CFR Marfa, the national freight rail carrier, the sale of a 15-per cent stake of the shares owned by the Government in the Transgaz national gas transmission corporation and the signing of a consultancy contract for an initial public offering of 15 per cent of the share capital of the Oltenia energy complex, reads the report of the ministry.

Fiscal and budgetary consolidation, the ministry says, was reflected in keeping the Government deficit to below the target of 3 per cent of the Gross Domestic Product (GDP) and 2.9 per cent in 2012, as well as in the credibility in the medium-term commitments of the Romanian Government that the deficit will be further cut to 2.4 per cent of the GDP in 2013 and 2 per cent of the GDP in 2014.

Substantial amounts of funds were also allocated for the implementation of the European Union's directive on combating late payment in commercial transactions and investment projects on national funds were prioritised, with funds being steered toward EU-sponsored projects and subsidies being cut.

Structural reforms required the implementation of strategic reforms and regulations in transportation and energy, as well as the reform of the Government-run enterprises that materialised in a continuing process of privatisation and the implementation of private management at such enterprises.

The successful conclusion of the arrangement with the IMF, just days after the European Union closed the excessive deficit procedure against Romania, is a signal of trust in Romania to international financial markets and to foreign investors, which will be reflected in an improved economic climate in Romania, reads the release signed by Voinea and Finance Minister Daniel Chitoiu.

The 24-month precautionary stand-by arrangement (SBA) in the amount equivalent to SDR 3,090.6 million (about 3.5 billion euros, 300 per cent of Romania's quota) came into effect on March 31, 2011.

In 2009, the Executive Board of the International Monetary Fund (IMF) approved a 24-month SDR 11.4 billion (about 12.9 billion euros or 17.1 billion US dollars) stand-by arrangement for Romania to support an economic program designed by the Romanian authorities and intended to cushion the effects of the sharp drop in capital inflows while addressing the country's external and fiscal imbalances and strengthening the financial sector.

Out of it, Romania withdrew seven of eight instalments totalling SDR 10.57 billion (11.9 billion euros). The Romanian authorities decided to treat the eight instalment as precautionary and because of positive macroeconomic developments in the meantime they did not withdraw it.

At a meeting on March 25, 2011, The Executive Board of the International Monetary Fund (IMF) approved a new 24-month precautionary Stand-By Arrangement (SBA) in the amount equivalent to SDR 3,090.6 million (about 3.5 billion euros, 300 per cent of quota).

On September 28, 2012, the Executive Board of the International Monetary Fund (IMF) today completed the sixth review of Romania's economic performance under a program supported by th 24-month stand-by arrangement (SBA). Completion of the review makes an additional amount equivalent to SDR 430 million (about 512.9 million euros, or about 663.1 million US dollars) available for disbursement. The authorities indicated that they will continue to treat the arrangement as precautionary and therefore do not intend to draw under it.

 

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