Press Release No. 10/191

Press Release No. 10/191
May 10, 2010

A joint mission from the International Monetary Fund (IMF), the European Commission (EC), and World Bank (WB) visited Bucharest from April 27 to May 10 to review Romania’s program.

Jeffrey Franks, IMF Mission Chief for Romania, made the following statement today:

“We have reached agreement at staff level on the fourth review of the Stand-By Arrangement. Subject to approval by IMF Management, and, subsequently, by the Executive Board, the fifth disbursement (SDR 768 million or almost €0.9 billion) would become available. The Executive Board meeting will take place after the Romanian authorities have taken the agreed prior actions.

“Romania has been hard hit by the global financial crisis. The macroeconomic outlook has been affected by the slower recovery in Europe but will pick up in 2011. Our projection for economic growth in 2010 is now in the range of 0 and -½ percent. End-2010 inflation is expected to ease to around 3¾ percent. We expect real growth to pick up later in 2010 and to reach around 3½ percent in 2011.

“Preliminary data for the first quarter suggest that the deficit target was observed, but government arrears rose, exceeding the arrears target. Other performance criteria and structural benchmarks were also met.

“Unfortunately, the worsening economic situation, together with continued strong expenditure pressures and slumping revenues, mean that for 2010 the deficit could shoot up to over 9.1 percent of GDP if no corrective action is taken. The authorities and the mission agreed that additional fiscal measures would be needed. The mission presented a number of options in this regard, most of them relying on significant revenue increases. The authorities decided, however, to focus primarily on cutting expenditures. The key measures decided by the government include: reducing public wages by 25 percent and pensions and social assistance by 15 percent; streamlining and refocusing social assistance programs on the truly needy; broadening the tax base and attacking tax evasion. With these measures, the cash deficit is projected to amount to 6.8 percent of GDP in 2010, compared to a previous target of 5.9 percent. We believe these policies will roll back the unsustainable expenditure increases in recent years and put Romania back on a path of growth.”

For information on the Stand-By Arrangement, please see the following links:

Romania and the IMF: http://www.imf.org/external/country/ROU/index.htm

Key documents are also available in Romanian: http://www.fmi.ro/