Bucharest, 1 November 2010
European Commission Staff Statement after a joint mission with the IMF and the World Bank to Romania
A European Commission services mission to Romania concluded that, if the specified actions agreed with the authorities are taken, the conditions for the fourth disbursement of the EU Balance of Payments assistance programme (EUR 1.2 bn) will be met.
A joint European Commission, IMF and World Bank mission visited Bucharest from 20 October to 1 November to assess implementation of agreed policies under the €20 billion multilateral assistance program for Romania.
The European Commission services concluded that, if the specified actions agreed with the authorities are all taken, the conditions for the fourth disbursement of the EU Balance of Payments assistance programme (EUR 1.2 bn) will be met. The actions to be taken include the adoption of the 2011 budget and the enactment of the unified wage law and the revised pension law as agreed between the Commission services and the authorities. The authorities also agreed to work with the Parliament to ensure that emergency ordinance 50 of 2010 improves transparency and protects consumer rights, while also safeguards the stability of the financial system, and that it is in full compliance with EU Directive 2008/48/EC. They will also ensure that the National Bank remains the only agency authorized to regulate banks’ lending activity.
Economic activity is expected to pick up towards the end of the year, with growth remaining negative in 2010 (at about -2 percent) but turning positive in 2011 (at about 1½ percent). Following a sharp rise attributable to the VAT rate hike in July this year and higher food prices, inflation is expected to decline towards 3 percent in the course of 2011
The mission also concluded that the deficit target of 7.3 percent of GDP in ESA terms (6.8 percent of GDP in cash terms) can be met in 2010. The government is expected to present soon its draft budget for 2011 with a deficit target of below 5 percent of GDP in ESA terms (4.4 percent in cash terms). The mission welcomes the authorities' continued commitment to reducing the budget deficit below 3 percent of GDP (in ESA terms) in 2012 and to pursuing ambitious structural reforms. The enactment of the Unified Wage Law and the implementation of health care reforms will be crucial steps in this regard.
In the financial sector, the strengthening of the funding regime and governance structure of the deposit guarantee fund was important step forward. There was, however, limited progress in the reduction of arrears in loss-making state-owned enterprises and further efforts are needed to increase the low rate of absorption of EU funds by prioritizing investment projects.
The mission will report its findings to the Commissioner for Economic and Financial Affairs and consult the Economic and Financial Committee. Subject to their agreement and satisfactory implementation of the agreed further measures, the Commission will disburse the fourth instalment of the EU loan to Romania.
More details on Balance of Payments assistance: