Romania To Meet Medium-Term Fiscal Targets, Must Ensure Permanence Of Adjustments - IMF

The recent efforts toward fiscal consolidation have put Romania on a sure path to meeting its short- and medium-term fiscal targets, but the main challenge is ensuring the permanence of these adjustments, by maintaining expenditure constraints and through structural fiscal reforms, said the IMF.

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"Key measures include pension reform, public sector wage reform, tax management, restructuring the healthcare sector and state companies. Setting off reforms on the labor market and as regards social protection will help boost productivity and direct the limited budgetary resources to vulnerable categories. The priority should always be solving the issue of arrears, through better payment discipline, and increasing authorities' credibility as regards adjustment efforts," said Murilo Portugal, deputy managing director of the International Monetary Fund.

According to him, Romanian authorities' fiscal and monetary policies have been adequately cautious and proactive, helping preserve financial stability in the face of the global crisis, but the temporary rise of inflation after the recent VAT hike points to a need for more prudence in estimating the amount of room available for monetary relaxation.

"The banking system remains liquid and well capitalized, but continued vigilance over the financial system is crucial in order to resist regional conditions," said Portugal.

The International Monetary Fund Friday approved the disbursement of around EUR900 million to Romania, following a new review of the country's performance under a EUR13 billion standby agreement.

An IMF mission visited Romania between July 26 and August 4 for the fifth review under the standby arrangement. Following the mission, the IMF revised downward its forecast on Romanian economic decline to 1.9%, from around 0.5% previously.

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 EUR10.7 billion from the IMF, EUR3.65 billion from the European Commission and EUR300 million from the World Bank.

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