Press Release No. 11/257

Press Release: IMF Completes First Review Under Precautionary Stand-By Arrangement with Romania and Approves €481 Million Disbursement

June 27, 2011

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Romania’s economic performance under a program supported by a 24-month precautionary Stand-By Arrangement (SBA). The completion of the review enables the immediate disbursement of SDR 430 million (about €481 million or about US$683 million). The authorities have decided to treat the arrangement as precautionary and informed the IMF that they do not intend to draw under the arrangement.

The SBA was approved on March 25, 2011 (Press Release No 11/101) in the amount of SDR 3,090.6 million (about €3.5 billion or about US$4.9 billion). The SBA came into effect on March 31, 2011.

Following the Executive Board's discussion on Romania, Mr. John Lipsky, Acting Managing Director and Acting Chair, stated:

“Romania has made a strong start under the new arrangement. All program targets were met, underscoring the authorities’ commitment to continued reform. The difficult fiscal and structural reforms implemented in the past have helped restore confidence and stability, and the economy has started to rebound after the deep recession in 2009–10. Further efforts are now needed to implement deeper and challenging structural reforms in the state-owned enterprise sector in order to secure the economic gains from earlier reforms and enhance opportunities for investment and growth.

“The authorities are on track to meet their fiscal targets for 2011. However, additional efforts will be needed to ensure achievement of the deficit target of 3 percent of GDP in 2012. Important reforms are underway in the health care sector, but faster progress is required to improve capital expenditure and EU funds absorption, tackle arrears, and improve tax administration. Expeditious implementation of reform plans for key state-owned enterprises—including a greater private sector role, enhanced regulation, and improved market-oriented pricing—will be essential to improve economic efficiency and boost growth.

“Inflationary pressures have been stronger than anticipated due to global food and fuel price shocks. The authorities have appropriately announced a change in the monetary policy stance towards a tightening bias. Early policy action could be needed to ensure that inflationary expectations and second round effects are well contained.

“The banking system remains liquid and well-capitalized, and the authorities have been carefully monitoring risks from small- and medium-sized banks and subsidiaries of euro area periphery banks. Further strengthening of banking supervision and contingency planning should be a priority to protect against potential adverse spillovers from financial turbulence elsewhere in Europe”.