News 01 Oct 12

IMF Unlocks New Funds for Romania

The International Monetary Fund, IMF,  has approved the release of 513 million euros following the sixth review of Romanian’s standby arrangement.

Marian Chiriac

The International Monetary Fund, IMF, on Saturday approved the release of the latest chunk of funds under Romania’s precautionary loan after reviewing the country’s progress in meeting the terms attached to the bailout.

As a result, Bucharest should receive around 513 million euro, but Romanian authorities have indicated that they do not intend to draw on the cash for now, maintaining the policy of treating the stand by arrangement as a precautionary funding line.

The IMF has again recognized the efforts made by Romania to control spending and play by the organisation’s rules within a difficult economic context.

“The authorities have maintained strict spending discipline consistent with the goal of lowering the budget deficit to 3 percent of GDP in 2012,” said David Lipton, the IMF's number two official.

"Nevertheless, the economic outlook remains challenging due to the difficult external and internal environments that have led to exchange rate pressures and undermined confidence," Lipton added.

The IMF made a number of recommendations: Romania must make an effort to reduce arrears and to improve tax administration and reform the health care, energy and transportation sectors. The Romanian authorities must also step up the liberalization of energy prices, IMF said.

Romania is trying to meet this year's public deficit target, set at 2.2 per cent of GDP, while inflation is targeted at 3.5 per cent. The economy will grow about 1.2 per cent this year, according to government estimates.

The new disbursement brings the total available to Romania to around 3.2 billion euro. In March 2011, the IMF approved a two year standby arrangement with Romania for approximately 3.7 billion euro, which should mean just one more instalment to go under the current agreement.

In May 2009, Romania obtained a 20-billion-euro rescue package from the IMF, the European Union and the World Bank in exchange for agreeing to push through austerity measures aimed at taming the country’s deficit.

One year later, the government cut civil servants' wages by 25 per cent, while thousands of state jobs were axed and VAT was increased by 5 per cent to 24 per cent.


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