EU Says Romania "Broadly" Meets Loan Terms

The Commission's statement comes after discussions with the Romanian authorities in Bucharest between April 26 and May 10, which focused on the implementation of the policy program under a EUR20 billion aid package that includes funds from the EU, the International Monetary Fund and the World Bank.

"The mission concluded that Romania had largely met the other policy conditions associated with the EU loan," the statement said.

"The Government has moved ahead in the area of fiscal governance: the fiscal responsibility law was adopted by Parliament in March; the members of the Fiscal Council have been designated; and a medium term budgetary framework is under preparation. The adoption by Parliament of both the draft pension reform and the second stage of the public sector wage reform is now a clear priority."

It said further progress has also been made in the area of financial regulation and supervision and that a contract has been signed with the World Bank to conduct a functional review of the public administration. "This is essential to make more rapid progress in terms of the absorption of EU structural funds," EU's executive arm said.

The Commission acknowleged that Romania has been hard hit by the world economic crisis. "This has caused government revenues to fall while social spending has risen. Even though hopes of an early recovery were dashed by a severe winter and weak domestic demand, the country should come out of the recession later in the year," it said.

"However, there are still uncertainties regarding the external environment. Under these circumstances, Romania needs to reinforce its economic reform and budgetary consolidation efforts."

The Romanian authorities and the mission concurred that fiscal performance in the first quarter of 2010 had been weak, both on the revenue and the expenditure side.

"Without additional measures the 2010 deficit target (5.9% of GDP in cash terms or 6.4% of GDP in ESA95 terms) would be missed by a significant margin," the Commission noted.

In view of this, the Romanian authorities have decided to take a number of additional measures aimed at narrowing the 2010 budget deficit to 7.3% of GDP in ESA95 terms, including deep cuts in public sector wages and pensions and a targeted reduction in other social benefits. If these measures aren't enough, the Romanian authorities committed to implement the revenue raising measures required to achieve the 7.3% of GDP budget deficit target, the Commission also said.

"Taking into account the additional expenditure cuts announced by the Romanian authorities, the policy conditions attached to the EU loan had broadly been met," it said.

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