Banca Naţională a României

Teams from the International Monetary Fund and the European Commission visited Bucharest 22 October - 5 November to conduct discussions on the first review of the economic programme supported by an IMF Stand-By Agreement and a status update of the precautionary balance of payments programme with the European Union.

Staff-level agreement has been reached. The programme remains broadly on track. All end-September 2013 performance criteria were met and progress was made toward meeting most of the structural benchmarks.

Real GDP growth in 2013 has strengthened on the back of strong agricultural output and robust export performance, and is now projected to reach 2.2 percent. Domestic demand, however, remains subdued contributing to a strong adjustment of the current account to 1.2 percent of GDP. In 2014, real GDP growth is forecast to remain flat at 2.2 percent with growth drivers gradually switching from net exports to domestic demand, and in particular to investment which is set to increase as the EU funds absorption accelerates. Inflation entered the central bank’s target band in September, reflecting largely lower food prices, and it is expected to close 2013 at around 2 percent. Notwithstanding the ongoing deterioration in asset quality, the banking sector remains resilient and has maintained sufficient capital buffers and reassuring loan-loss provisions.

The authorities have continued the fiscal adjustment and met the September fiscal deficit target as revenue shortfalls were compensated by expenditure restraint. The end-year target is now set at 2.5 percent of GDP (up by 0.2 percent in cash terms) to accommodate higher co-financing needs associated with faster absorption of EU funds. For next year, the authorities plan to gradually lower the deficit further, in line with achieving Romania’s medium-term budgetary objective (MTO) of a structural deficit (ESA-based) of 1 percent in 2015, while also accommodating expected further increases in co-financing expenditure.

The structural reform efforts are bringing good results in some areas. The successful initial public offering for 15 percent of Romgaz represents a landmark transaction for the state owned enterprise sector and for Romania’s capital markets. However, the failure to complete the majority privatization of the freight railway company CFR Marfa was a setback though the government remains committed to continue the privatization process and to support a restructuring of the company in the interim. Healthcare reform preparations are advancing, the price liberalization agenda for energy is on track, and steps were taken to strengthen public financial management, such as investment prioritization.

Sources: International Monetary Fund, Regional Office for Romania and Bulgaria press release and European Commission press release