The International Monetary Fund (IMF) has completed the sixth review of Romanian's standby arrangement and approved the release of the latest chunk of funds. As of the decision announced September 28, a further sum of just under EUR 513 million is available.

Despite praise for effort, Romania failed to meet some of its targets, which the Executive Board of the IMF was forced to waive to allow the latest disbursement. “Romania continues to make good progress under the precautionary program. All performance criteria and indicative targets were met except for the central and local government arrears,” said IMF First Deputy Managing Director and Acting Chair David Lipton. According to the IMF, the Romanian authorities have indicated that they do not intend to draw on the cash, maintaining the policy of treating the stand by arrangement as a precautionary funding line.

The IMF has again recognized the efforts made by Romania to control spending and play by the Fund's rules in a difficult economic context.“The authorities have maintained strict spending discipline consistent with the goal of lowering the budget deficit to 3 percent of GDP in 2012,” said David Lipton. But the IMF's conclusion is far from a pat on the back for Romania; the performance criteria for government and social security domestic arrears and net foreign assets of Romania's central bank (BNR) were not met. In the first case the IMF waived the target, while the criterion for foreign assets was modified.

The IMF made a number of recommendations – Romania must make an effort to reduce arrears and the IMF again repeated its reform mantra: “Additional efforts are needed to improve tax administration and reform the health care, energy and transportation sectors.” The Romanian authorities must also “step up” the liberalization of energy prices. On the health of Romania's banking sector, the IMF was positive, saying buffers were in place to deal with non-performing loans and possible spillovers from Europe and the eurozone. But the IMF advises “vigilance” and a beefing up of the banking sector's financial safety net, along with further “contingency planning.” Excessive interference to prop up Romania's currency is discouraged, with the IMF recommending that support is “limited to smoothing exchange rate volatility.” Growth will slow and inflation is reaching the upper limit of the BNR's target range, the IMF also warned.

The new disbursement brings the total available to Romania to around EUR 3.2 billion. In March 2011, the IMF approved a 24 month standby arrangement with Romania for approximately EUR 3.7 billion, which should mean just one more installment to go under the current agreement.

Liam Lever, liam@romania-insider.com