The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Romania’s economic performance under a program supported by a 24-month Stand-By Arrangement (SBA). The authorities have indicated that they will continue to treat the arrangement as precautionary and therefore do not intend to draw under it.

Completion of the review makes an additional amount equivalent to SDR 430 million (about €519.4 million, or about US$651.3 million) available for disbursement, bringing the total resources that are currently available to Romania under the SBA to SDR 2.21 billion (about €2.67 billion, or about US$3.35 billion).

In completing the review, the Executive Board also approved a waiver for the nonobservance of a performance criterion on the stock of central government and social security arrears.

The SBA was approved on March 25, 2011 (see Press Release No 11/101) in the amount of SDR 3,090.6.1 million (about €3.73 billion, or about US$4.68 billion) and came into effect on March 31, 2011.

Following the Executive Board’s discussion on Romania, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, said:

“Romania’s economic performance under the program remains strong. GDP growth is projected to pick up in the second half of the year, inflation remains in check, and the fiscal and external positions continue to improve. However, with external downside risks looming large, a steadfast implementation of all program commitments, including structural measures, is needed to preserve macroeconomic stability and boost potential growth.

“The budget deficit target has been eased slightly to allow for some countercyclical spending. Strict spending discipline will nonetheless be required to meet the revised target. More broadly, further efforts to resolve outstanding arrears as well as reforms in tax administration and health care remain necessary to the achievement of the fiscal objectives under the program. The authorities also need to advance reforms in the energy and transportation sectors where price distortions and inadequate governance continue to hamper efficiency. In this regard, efforts to restructure and privatize state-owned enterprises should be intensified. Slow reforms to date have discouraged investment, holding back living standards.

“Romania’s banking system remains vulnerable to spillovers from elsewhere in Europe owing to close financial sector ties. Banks’ capital adequacy is good and provisions are high, but non-performing loans continue to rise. Against this background, the authorities should further strengthen financial sector oversight and their crisis management framework. Monetary conduct also needs to remain cautious and exchange rate policy should limit foreign exchange intervention as long as the impact of a weakening currency on prices and balance sheets remains modest.”