IMF on Romania: Good progress but risks to economy, privatization of state assets must quicken

Romania is on track, but there are risks to the country's economy, according to International Monetary Fund's (IMF) latest report released yesterday ( July 2 ) following the fifth review of Romania's stand by agreement with the IMF in June. Romania continues to meet many of its targets, but “strict spending discipline will remain paramount,” if the country is to meet new objectives, warns the IMF.

The ongoing eurozone crisis poses threats to Romania's banking system and the pace of economic growth, believes the IMF. Romania's progress with the stand by agreement was given cautious approval. Romania met all but one of the IMF's qualitative performance criteria but was again criticized for the lack of headway made with structural reforms. The speeding up of the privatization of state assets is among the IMF's key issues for Romania. Also deemed urgent by the IMF are the reform of the health and tax systems and the need to strengthen the financial sector's contingency planning and “safety net mechanisms.” The IMF still estimates “around 1.5 percent GDP growth in 2012”. There have been several lower estimates recently, of around 1.25 percent growth. Romania has received IMF approval for public sector pay increases and Victor Ponta's new government has previously pledged its commitment to the IMF program. Following the review, the IMF approved the disbursal of an additional EUR 509 million, the sixth tranche of the EUR 3.4 billion agreed in March 2011. The Romanian authorities are continuing the policy of only drawing on the funds if absolutely necessary. Liam Lever, liam@romania-insider.com