IMF Praises Romania’s Efforts To Restore Macroeconomic Stability

Lipsky said that Romania has made efforts to adjust to its weakened fiscal position and „set the stage for a sustained improvement in public finances. Balancing the fiscal adjustment between expenditure cuts and tax increases will help cushion its social impact, while at the same time reversing excessive past increases in public wages.”

Lipsky also lauded Romania’s initiative to amend its fiscal responsibility legislation with pension, public sector wage, healthcare and local government finance reforms, public sector layoffs, and efforts to improve its tax collection rate.

The IMF director also applauded the authorities’ cautious and proactive monetary and financial policies, prompted by the uncertainties regarding the impact of the recently announced VAT hike. Lipsky expressed his belief Romanian officials will remain vigilant „in view of the unsettled regional situation and the accompanied uncertainties regarding the quality of the loan portfolio.”

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The IMF approved Friday the disbursement of approximately EUR900 million to Romania, following a new review of the country’s performance under a EUR13 billion standby agreement. The board also accepted a third waiver of non-observance of the performance criterion pertaining to Romania’s general government domestic arrears.

An IMF mission visited Romania between April 27 and May 10 for the fourth review under the standby arrangement. Following the mission, the Romanian government announced a 25% public sector wage cut and a 15% pension decrease, in an effort to slash public spending and reduce the budget gap to 6.8% of the gross domestic product this year, from a deficit of 7.4% of GDP in 2009. The country’s Constitutional Court rejected the pension cut, leading the government to increase the sales tax by five percentage points to 24% instead.

Romania and the IMF agreed last spring on a EUR13 billion loan, as part of a larger EUR20 billion aid package that includes funds from the European Commission, the World Bank and other international lenders. So far, Romania has received around EUR9.2 billion in IMF money and another EUR2.5 billion from the Commission.

The Commission is expected to disburse a third tranche worth EUR1.15 billion to Romania in September.

Joint teams from the IMF and EU are scheduled to visit the country for a new review mission on July 20.