Press release of Office of the Resident Representative in Romania of International Monetary Fund
18.10.2002
Today, Mr. Neven Mates, IMF mission chief for Romania, made the following statement:
An IMF mission visited Bucharest during October 7-18 to review the stand-by arrangement and to hold the regular annual consultation.
Romania’s macroeconomic developments continue to be very favourable. Inflation has fallen faster than we had hoped, the current account has improved, and output is strong. Romania’s export performance has been particularly impressive, and investment continues to recover as business confidence strengthens. Fiscal and monetary policies remain on track.
We welcome the improvement in the financial results of the main energy utilities which reflect price adjustments and improved collections, particularly in the gas sector. Some problems, however, occurred in the public enterprises’ wage policy. Most enterprises followed prudent policies but wage growth in some companies was in excess of what could be justified. As a result, the aggregate wage policy target under the program at end September was not met and this will affect performance for the whole year. We expect some improvement over the next few months in advance of the IMF Board discussion of the review.
We welcome the government’s commitment to continue with disinflation and to follow prudent financial policies. The government’s determination to proceed with much needed structural reforms will be key for sustaining Romania’s recent very favorable growth performance.
On the fiscal front, the main provisions of the 2003 draft budget submitted to the Parliament are appropriate and in line with a tighter deficit of 2.65 percent of GDP. The full year-impact of the recently implemented VAT and profit tax laws is expected to yield higher taxes, while the projected decline in interest expenditure should create the scope to increase capital expenditures and improve social safety net. Particularly welcome is the reduction by 5 percentage points of the social security contributions, which will help in reducing unemployment and improving competitiveness.
The Government has assured that it is determined to accelerate privatization. Several large companies have now reached the final stage of negotiations. The mission hopes that the relaunching of the privatization process of Banca Comerciala Romana will be very successful. The mission also welcomes the authorities’ request for a 4-month extension of the stand-by arrangement until end-August 2003, which will allow this important privatization project to be achieved within the timeframe of the program.
With the decisive implementation of the agreed policies, the mission expects that the IMF Board would approve the completion of the third review early in 2003.