IMF Executive Board Approves New €1.98 Billion Precautionary Stand-By Arrangement for Romania

IMF Press Release September 27, 2013

The Executive Board of the International Monetary Fund (IMF) today approved a new 24-month Stand-By Arrangement (SBA) in an amount equivalent to SDR 1.75 billion (about €1.98 billion, or 170 percent of Romania’s quota in the Fund). The authorities have informed the IMF that they intend to treat the new arrangement as precautionary, and therefore do not plan to draw under it. The authorities have also requested precautionary support from the European Union of €2 billion.

Following the Executive Board’s discussion on Romania, Ms. Nemat Shafik, First Deputy Managing Director and Acting Chair, stated:

“Under the authorities’ economic programs supported by the last two SBAs with the Fund, Romania has reduced large external and fiscal imbalances and begun structural reforms in a variety of areas. However, real GDP has yet to return to its pre-crisis level, the economy is still vulnerable to external shocks, including volatile capital flows, and the reform agenda remains unfinished. The new SBA will support policy continuity, provide a reserve buffer, and catalyze growth-enhancing reforms. It will also put Romania on the path toward exiting from Fund support.

“The current orientation of monetary and fiscal policies is broadly appropriate. The authorities should be commended for their plans to further reduce at a gradual pace the budget deficit in line with Romania’s commitments under the EU’s Stability and Growth Pact. Pressure to rollback previous fiscal reforms should be resisted, and institutional reforms to clear arrears, prioritize public investment, and increase absorption of EU funds should be accelerated. Measures to broaden the tax base, strengthen tax administration, and reform the healthcare system are also needed.

“Macro-critical reforms in the transportation and energy sectors are important to improve the business climate. The gradual deregulation of energy prices, supported by measures to protect vulnerable consumers, should be continued. Likewise, the authorities’ commitment to undertake long-delayed reforms of state-owned enterprises, including improvement in governance and the expansion of private-sector involvement, is welcome.

“The banking system is well capitalized and foreign bank deleveraging remains orderly. However, balance sheet repair needs to accelerate as non-performing loans continue to rise. The amendment of the insolvency code and the adoption of covered bond legislation would be important steps in this direction. As an additional policy priority, the governance structure at the non-bank financial supervisor should be brought in line with international standards,” Ms. Shafik stated.