Bancherul - BANCI / ENGLISH / Statement by the IMF and the EC on the Review of Romania's Economic Program

Statement by the IMF and the EC on the Review of Romania's Economic Program

Press Release No. 13/25
January 29, 2013

Teams from the International Monetary Fund (IMF) and the European Commission (EC) visited Bucharest during January 15–29 to conduct discussions on the 7th and final review by the IMF and the last review by the EC of Romania’s economic program.

Agreement was reached, at staff level, on corrective actions that are needed to achieve the objectives of the program, notably as regards the reduction of government payment arrears and public enterprise reform, and on the 2013 draft budget. In view of the time needed to take these measures and complete the reviews successfully, the authorities will ask for an extension of their program with the IMF by three months. This should also facilitate the completion of the last review by the EU.

Preliminary estimates suggest that real GDP growth in 2012 was almost flat. In 2013, growth is projected to pick up to around 1.6 percent, mainly driven by domestic demand. Inflation increased to 5 percent at end-2012, partly due to higher food prices following the bad harvest, and is expected to come down in the second half of 2013 to slightly above 3.5 percent by year-end. The current account deficit is expected to remain around 4 percent of GDP in 2013.

The fiscal imbalances that built up before the global financial crisis have been largely corrected. Preliminary estimates suggest that the 2012 budget deficit in accrual terms was reduced to below 3 percent of GDP—as planned. However, the cash deficit target was missed, mainly due to suspensions of reimbursements for some EU-funded projects because of past irregularities discovered by the Romanian audit authorities.

The 2013 budget targets a deficit of 2.4 percent of GDP in accrual terms and 2.1 percent in cash terms. The budget allows for the increase of public sector wages so as to restore them to pre-crisis levels, a 4 percent increase in pensions, and also includes a significant allocation to reduce payment periods in health care to 60 days, in line with the EU Late Payments Directive (7/2011/EU). Revenue measures include some reductions in tax deductions, improved taxation of agriculture, and making the turnover tax of 3 percent on small enterprises mandatory. The minimum wage will increase from RON 700 by RON 50 on February 1, and then by another RON 50 on July 1.

The authorities expressed their commitment to resume public enterprise reform: the secondary public offering of 15 percent of the capital of Transgaz will be finalized in the coming months and a majority share in CFR Marfa will be sold to a strategic investor. Oltchim will be put into insolvency. Efforts to appoint professional boards and managers in public enterprises will be stepped up. The roadmaps for electricity and natural gas price deregulation will be strictly followed, while measures will be taken to protect the most vulnerable households.