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IMF: Romania’s priorities are increase in community funds absorption and improvement of capital spending

The Executive Board of the International Monetary Fund (IMF) approved the fourth review of the precautionary agreement with Romania, but warned however that it was necessary to continue the commitments to economic reforms in order to help withstand current uncertainties and to increase potential growth, reads the release published on the IMF page.

Romania continues to make good progress under the precautionary Fund-supported program. Policy implementation has remained strong and all program targets were met. After two years of decline, economic growth has resumed and inflation has fallen to historical lows. However, the economic outlook for this year is being weighed down by the declining growth prospects in the euro area.

Continued commitment to the economic reform agenda is crucial to help withstand current uncertainties and increase potential growth,” said IMF Deputy Managing Director and Acting Chair Nemat Shafik.

„The authorities remain firmly committed to their 2012 budget deficit target of well below 3 percent of GDP. Continued strict spending discipline is needed to achieve the target. Increased European Union funds absorption and improved capital spending are key priorities.

Additional action is required to reform the health care sector and to improve weak tax administration. Structural reforms of State-Owned Enterprises have progressed, but faster implementation of restructuring efforts and enhanced regulation and market-oriented pricing in the energy and transport sectors will be essential to reduce arrears, improve economic efficiency, and boost growth,” reads the Fund”s release.

Referring to the situation in the banking system, the IMF appreciates that the risks remain significant due to high non-performing loans and the possible effects of the financial crises that appeared elsewhere in Europe. „But the authorities should be cautious in further monetary easing in light of risks of weakening of the currency and possible capital outflows,” says the IMF.

Concurrently with the fourth review of the precautionary agreement with Romania being approved on Wednesday, the IMF board also placed at Romania”s disposal a new tranche amounting to 430 million SDR, about 500 million euros. Having this new tranche, Romania can use 1.78 billion SDR, about two billion euros, from the IMF.

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