A joint mission of the European Commission, the International Monetary Fund and the World Bank met with the Romanian authorities from January 20 to 27 to review the implementation of the policy programme under the €20 billion multilateral assistance package.
The main objective of the review, on the Commission's side, was to assess compliance with the policy conditions attached to the Balance of Payments loan agreed by the European Union in May 2009, in particular for the release of a second instalment of €1 billion.
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 the programme is broadly on track and that the policy conditions attached to the second disbursement of the EU financial assistance are broadly met.
Regarding fiscal policy, the achievement of the 2009 cash deficit target (7.3% of GDP) and the adoption by the Parliament of a budget for 2010 that is in line with the agreed deficit target (5.9%) are significant milestones. The consolidation effort should be continued by ensuring a full and timely implementation of the measures agreed. This will help to improve market confidence and to create room for manoeuvre for growth-enhancing expenditures.
The government has also moved ahead in the area of fiscal governance. Looking forward, the staff-level mission concluded it will be essential that the Parliament adopts pending legislation, including the draft Fiscal Responsibility Law, the draft pension reform and the second stage of the public wage reform. Reforms to improve tax administration and to strengthen controls over public entities outside the central government have also been agreed.
Good progress has been made to improve financial sector regulation and supervision by strengthening the regulatory framework for banks and the deposit insurance scheme. The authorities are also working on reforms that will improve the business environment and enhance the efficiency of R&D. Finally, measures to get a better value for public money by improving the efficiency of the public administration and to stimulate the absorption of EU funds are in the pipeline.
Overall, the multilateral assistance package has helped improve economic conditions and outlook in Romania by contributing to ease financial tensions. External financing pressures have eased following the faster-than-projected reduction of the current account deficit and better than expected capital inflows.
The positive assessment of the staff will be discussed with the European Economic and Monetary Affairs Commissioner, and Member States will be consulted, before a final decision is taken.
The EU disbursed a first instalment of €1.5 billion to Romania in July. The second instalment of €1 billion is scheduled for March if it is concluded that the conditions are indeed met.
You can view the original press release on the Europa website.