Romania has passed the seventh and eighth reviews and thus successfully completes the Standby Arrangement with the International Monetary Fund (IMF). However, the expression passed with flying colors would hardly be appropriate. The IMF had to waive some objectives and gave a long list of areas in need of improvement.

Completion of the reviews makes the final chunk of funds available for disbursement, just over EUR 520 million. This takes the total funds made available to Romania under the agreement to just short of EUR 3.6 billion. As throughout the Standby Arrangement, Romania is continuing to use the funds as a precautionary credit line, without drawing on them.

The IMF waived objectives on net foreign assets of Romania's central bank (BNR), the general government balance and central government arrears to allow Romania to pass the review. The IMF granted the waivers because of “corrective actions taken by the authorities.”

“The economy has stabilized. Core inflation remains low, and the fiscal and current account balances are sustainable,” said the IMF's Deputy Managing Director and Acting Chair Nemat Shafik following the Executive Board's discussion on Romania. But she warned that growth is weak and that there are downside risks to Romania's economy. “Structural reforms are critical to realizing Romania’s growth potential and creating jobs, while continued fiscal discipline is essential to anchor macroeconomic stability,” said Shafik.

With politicians and members of financial institutions talking about a new deal with the IMF, Shafik's comments make it clear what sort of objectives would be set in any new agreement. There is a long list of recommendations, such as tax administration and healthcare reform along with tax base broadening measures. The IMF's Deputy Managing Director also said that reform of the energy and transport sectors and of state-owned enterprises remains incomplete. “More must be done to reform inefficient state-owned enterprises, including through greater private-sector involvement,” she said.

Although giving Romania's monetary policy a general thumbs up and noting that Romanian banks are well capitalized, Shafik highlighted that the banking sector is still susceptible to external shocks. She suggested that the authorities carry out extra contingency planning and remove obstacles to resolving non-performing loans.

The completed Standby Arrangement was approved on March 25, 2011, and became effective on March 31, 2011. The agreement was due to finish at the end of March this year, but the IMF gave Romania an extra three months to meet outstanding objectives.

editor@romania-insider.com