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EUROPEAN COMMISSION
MEMO
Brussels, 4 February 2014
Romania: Statement at the Conclusion of the IMF and EC
Staff Visit
Teams from the International Monetary Fund and the European Commission visited
Bucharest during January 21-February 4 to conduct discussions on the combined first and
second reviews under the IMF Stand-By Agreement (SBA) and on the status of Romania’s
precautionary balance of payments programme with the European Union.
Staff level agreement has been reached. The programme remains broadly on track. Most
end-December performance criteria were met and structural benchmarks have either been
met or are nearing completion.
In 2013, real GDP growth picked up to an estimated 2.8 percent, on the back of continued
strong exports, while domestic demand remained subdued. Economic activity was driven
mostly by robust industrial output and an abundant harvest. In 2014, real GDP is
projected to advance by 2.2 percent with domestic demand firming on the basis of a
supportive policy framework, better absorption of EU funds, and an improvement in
confidence. Historically low inflation is projected to decline further in the first half of 2014
before returning to the upper part of the central bank’s target band in the second half of
2014. The current account deficit is expected to remain between 1 and 1.5 percent of
GDP, contributing to Romania’s strong external position, which has helped the country
weather recent pressures on emerging markets.
The authorities approved a budget consistent with a deficit target of 2.2 percent of GDP
for 2014. A subsequent delay in the implementation of excise taxes on fuel products will
be compensated with freezes on the expenditure side. The authorities intend to continue
fiscal adjustment in 2015, in order to reach Romania's medium-term budgetary objective
of a structural deficit of 1 percent of GDP, while also accommodating expected further
increases in co-financing of projects supported by the EU.
Monetary policy continues to be accommodative, which has translated into a considerable
reduction in lending rates. Combined with the government loan guarantee programmes,
this should enable lending activity in lei to start a modest recovery. Notwithstanding
pressures on asset quality, the banking sector continues to maintain reassuring capital,
liquidity and provisioning buffers.
Progress on reducing state-owned enterprise arrears has stalled. However, corrective
actions are being launched, including budgetary transfers and restructuring measures. An
action plan to sustainably lower arrears over the medium term will be defined. Building on
the success of the Romgaz IPO, progress toward completion of Initial Public Offerings
(IPOs) of three other state-owned enterprises remains broadly on schedule. Regulatory
reforms in energy and transport sectors are set to continue, as well as deregulation of the
gas and electricity prices, in line with the earlier agreed roadmaps.
MEMO/14/75