IMF Completes Second and Third Review Under Stand-By Arrangement with Romania and Approves US$3.32 Billion Disbursement

The Executive Board of the International Monetary Fund (IMF) completed the second and third reviews of Romania's economic performance under a program supported by a 24-month Stand-By Arrangement (SBA), the organisation said in his press release. The completion of the reviews enables the immediate disbursement of SDR 2.18 billion (about €2.45 billion or about US$3.32 billion), bringing total disbursements under the program to SDR 8.26 billion (about €9.32 billion or about US$12.60 billion).

In completing the reviews the Executive Board also approved Romania's request for a waiver of non-observance of the end-December 2009 performance criterion pertaining to the ceiling on the accumulation of general government domestic arrears. The SBA was approved on May 4, 2009 in the amount of SDR 11.443 billion (about €12.91 billion or about US$17.45 billion). The arrangement entails exceptional access to IMF resources, amounting to 1,111 percent of Romania's quota.

Following the Executive Board's discussion on Romania, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, stated:

"Policy implementation has been strong despite a difficult political and economic environment. Nonetheless, continued efforts to fully implement the economic program remains essential to strengthen macroeconomic stability and provide the basis for strong, sustainable growth.

Despite recent consolidation efforts, Romania faces major fiscal challenges. The deficit needs to be reduced to stabilize the public debt-to-GDP ratio and to comply with the criteria for accession to the euro area. The 2010 deficit target strikes an appropriate balance between accommodating the still weak economic situation and medium-term consolidation objectives. However, the adjustment strategy entails politically difficult spending decisions and will require strong and steadfast implementation. The authorities are prepared to take additional measures, if necessary, to ensure attainment of their fiscal objectives. Additional reforms to strengthen fiscal controls are crucial, including in expenditure commitments, contingent liabilities, and public entities outside the central government. The authorities are strongly committed to pursue further structural reforms to permanently address the fiscal challenge and improve economic growth. Pension reform, public employment and wage reforms, and improvements in public sector efficiency will be key.

The inflation targeting regime and flexible exchange rate policy have helped to cushion the impact of the crisis while providing an appropriate anchor for monetary policy. In 2010, the central bank will give priority to bringing inflation within its target band, which will require a cautious approach to further monetary easing.

The Romanian financial sector continues to weather the crisis well, despite increasing non-performing loans. Continued supervisory vigilance will be necessary to respond to threats to the stability of the system, as well as to possible spillover effects."