Brussels, 10 May 2010
Statement after a joint Commission-IMF-WB mission to Romania
The joint European Commission, IMF and World Bank mission has concluded its discussions with the Romanian authorities on the implementation of the policy programme under the € 20 billion multilateral assistance package. Agreement has been reached on additional measures to narrow the 2010 budget deficit to 7.3% of GDP (in ESA95 terms). Such a consolidation effort is necessary to put Romania's public finances on a sound footing, while creating the conditions for a sustainable economic recovery.
A joint mission of the European Commission, the IMF and the World Bank was in Bucharest from 26 April until 10 May to assess Romanian compliance with the policy conditions attached to the EU balance of payments support programme. The Commission mission led by Matthias Mors, Director at the Economic and Financial Affairs Directorate General (ECFIN) and Fabienne Ilzkovitz, Head of Unit at ECFIN, concluded provisionally that, taking into account the additional expenditure cuts announced by the Romanian authorities, the policy conditions attached to the EU loan had broadly been met.
Romania has been hard hit by the world economic crisis. This has caused government revenues to fall while social spending has risen. Even though hopes of an early recovery were dashed by a severe winter and weak domestic demand, the country should come out of the recession later in the year. Moreover, since the start of the balance of payments support programme in May 2009, the RON has stabilised, inflation is kept under control and interest rates have come down creating the conditions for businesses to recover from the economic downturn. However, there are still uncertainties regarding the external environment. Under these circumstances, Romania needs to reinforce its economic reform and budgetary consolidation efforts.
The Romanian authorities and the mission concurred that fiscal performance in the first quarter of 2010 had been weak, both on the revenue and the expenditure side. Without additional measures the 2010 deficit target (5.9% of GDP in cash terms or 6.4% of GDP in ESA95 terms) would be missed by a significant margin. In view of this, the Romanian authorities have decided to take a number of additional measures aimed at narrowing the 2010 budget deficit to 7.3% of GDP in ESA95 terms. These measures, mainly on the expenditure side, include deep cuts in public sector wages and pensions and a targeted reduction in other social benefits. If these measures do not prove sufficient to reach the agreed deficit target, the Romanian authorities have committed to implement the revenue raising measures required to achieve the 7.3% of GDP budget deficit target.
The mission concluded that Romania had largely met the other policy conditions associated with the EU loan. The Government has moved ahead in the area of fiscal governance: the fiscal responsibility law was adopted by Parliament in March; the members of the Fiscal Council have been designated; and a medium term budgetary framework is under preparation. The adoption by Parliament of both the draft pension reform and the second stage of the public sector wage reform is now a clear priority. Further progress has also been made in the area of financial regulation and supervision. Recently legislation was passed in order to improve the bank resolution framework and ensure the independence of non-banking financial sector regulators. Moreover, a contract has been signed with the World Bank to conduct a functional review of the public administration. This is essential to make more rapid progress in terms of the absorption of EU structural funds.
At staff level, a positive assessment of the programme will be reported to Brussels. Subject to a favourable decision by the Commission and following consultation of the EU Member States, a Supplemental Memorandum of Understanding including the new measures agreed will be signed in June 2010.
For more information see the link to the webpage on the Balance-of-Payment assistance for Romania: