The executive board of the IMF completed last Friday the fifth review of the 2-year stand by agreement with Romania, making around EUR 520 million ready for disbursement, increasing the total funds available to Romania to about EUR 2.67 billion.
Romanian authorities said they will continue to treat the arrangement as precautionary and will not draw under it. The country signed last year a EUR 3.5 billion stand-by agreement with the IMF, pledging to pursue structural reforms in order to improve the macroeconomic figures. This includes cuts in public spending and a lower budget deficit, in the same time restructuring and privatizing state-owned enterprises.
“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,” said Nemat Shafik, IMF’s deputy managing director and acting chair.
Romania still needs to solve issues in tax administration and health care in order to bring down arrears. Energy and transportation are the sectors that need urgent reforms. The IFM said that slow reforms to date have discouraged investment, holding back living standards.
The country’s banking sector is registering an expansion of bad loans, in a market where 83 percent of the assets are owned by foreign institutions.
“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,” said Shafik.
The IMF estimates the Romanian economy will grow by 1.5 percent this year, further increasing to 3 percent next year, while the inflation is expected to stabilize at 2.9 percent by year end.
Ovidiu Posirca