## 1. Key Health Care Reform Measures Implemented with the World Bank Assistance ## Source details **Canonical URL:** [1. Key Health Care Reform Measures Implemented with the World Bank Assistance](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11158.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11158.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11158.pdf.json) --- ### I. Introduction and summary - Growth and inflation - Growth is expected to reach 1½ percent this year, and accelerate to 3¾–4 percent in 2012. - Inflation expected to remain above 5 percent, exceeding the central bank’s inflation target (3 percent ± 1 ppt) in 2011 before gradually returning to the target range in 2012. - External position and reserves - Strong export performance expected to stabilize the current account deficit below 5 percent in 2011–12. - International reserves met the end-March NFA target by some €169 million. - Program implementation and risks - Authorities met all performance criteria for the first review. - Structural benchmark stock-taking confirmed substantial SOE arrears and additional unpaid bills in the health sector. - Political constraints likely to intensify as the 2012 elections approach; achieving 2012 objectives will likely require additional adjustment and resistance to pressures for tax cuts or expenditure increases. ### II. Macroeconomic developments and outlook (2011–12) - Recent developments - Q1 2011 growth: 0.6 percent (qoq); first quarter GDP growth: 0.7 percent (qoq) and 1.7 percent (yoy). - Registered unemployment rate: 5.9 percent in March. - CPI inflation: jumped to 8.3 percent in April from 7.0 percent in January; accelerated to 8.4 percent yoy in May; expected peak at 8.5 percent in mid-year. - Leu appreciated by 4 percent against the euro since late 2010; since June 1 the leu depreciated by about 2 percent. - Current account deficit: improved from 13.4 percent of GDP in 2007 to 4.1 percent of GDP in 2010; projected to stabilize under 5 percent of GDP in 2011–12. - Outlook and risks - Growth: 1½ percent in 2011; 3¾–4 percent in 2012. - Inflation: staff expects headline CPI to recede to around 5.7 percent by end-2011; further disinflation towards the central bank’s target (3 percent +1 ppt.) in 2012, though policy action may be needed. - Note: forecast includes elimination of heating subsidy at the central government level, contributing 0.6 percent increase in annual inflation. - Risks: downside—domestic political tensions, euro area periphery spillovers; upside—faster consumer confidence recovery and rapid structural reform implementation. ### III. Fiscal policies and implementation - 2011 performance and near-term adjustments - Authorities on track to meet 2011 deficit target of 4.4 percent of GDP. - Fiscal data through April show a deficit well below program; tax revenues slightly higher and current and capital expenditures lower. - Estimated mid-year reallocation needed: about 0.2 percent of GDP to accommodate health sector unpaid bills before they become arrears. - Expenditure reform measures in 2011 - (i) Public employment rationalization: public employment fell by another 15,000 (to 1.25 million) in Q1 2011. - (ii) Replacement of central government heating subsidies with targeted assistance and streamlining of social assistance. - (iii) Elimination of stimulente funds (structural benchmark, end-August). - (iv) Temporary increase in distribution of dividends from profitable SOEs in 2011 and 2012 to pay unregistered bills uncovered in stocktaking. - (v) Ongoing health sector reforms. - Challenges for 2012 target - Achieving 3 percent of GDP deficit in 2012 will require continued expenditure restraint and additional measures: adjustment of about ½ percent of GDP to cover inclusion of several loss-making SOEs into general government accounts. - Political pressures to reduce social contribution rates and fully restore the remainder of the 25 percent public wage cut passed in mid-2010. - Staff advocacy: concentrate on further expenditure containment rather than additional revenue measures. - Arrears and unpaid bills - Central government and social security arrears declined in Q1; total SOE arrears grew by about ¼ percent of GDP to more than 4 percent of GDP. - Stocktaking revealed unpaid bills mainly in health (about 0.1 percent of GDP) and VAT-related local bills (about 0.1 percent of GDP). - Authorities’ arrears action plan: - Health: verify bills and clear all arrears by end-2011; continue health reforms to prevent new arrears. - Local governments: January 2011 amendment bans accumulation of arrears and requires balanced budget execution. - SOEs: use bankruptcy procedures, scheduled repayment, netting out within general government, state resources (with EU competition clearance), restructuring, securitization, and debt-equity swaps; restructuring timed to prevent new arrears (structural benchmark). ### IV. Health sector reforms and fiscal implications (World Bank assistance) - Key reforms implemented or planned - Major redesign of the publicly insured basic benefits package to take effect in 2012. - IT reforms: electronic prescriptions, strict drug use protocols, and national health cards in 2012 to control fraud and monitor spending. - Legislation for modest copayments expected to be passed by parliament in the coming months (copayments expected to go into effect in 2012). - Continued focus on containing drug cost escalation, including clarification of claw back tax for pharmaceuticals (effective end-April). - Specific operational measures (Box 1) - Drug benchmarking for major drug lists. - Reduction of hospital inpatient admissions by 10 percent. - Budget cuts for financing of 67 hospitals reducing financed hospital beds from 135,200 to 129,500 effective July 2011; further reduction planned until 2013 to reach the EU average. - Elimination of mandatory contracting with all hospitals; design mechanisms to allow higher financing for more complex treatments while reducing financing for others. - Reduction of physicians’ reimbursement based on capitation from 70 percent to 50 percent; introduction of indicative caps for services. - Fiscal impact and arrears handling - Significant cost-cutting reforms implemented aimed at improving efficiency and achieving EU average benchmarks. - Health expenditures likely to exceed the 2011 budget due to unpaid bills; an additional mid-year allocation is likely needed to cover unpaid bills before they become arrears. - Authorities will clear verified health sector arrears by end-2011. - Arrears uncovered in stocktaking: additional unpaid bills of some RON 500 million in health; mid-year supplementary budget to address shortfall. ### V. Revenue, tax administration, and financing strategy - Tax administration reforms (IMF TA-supported) - Setting up the high net wealth individual program. - Developing indirect audit methods to underpin a compliance risk strategy to be implemented by September. - Government to pass an ordinance on restructuring ANAF (prior action) to staff the Tax Verification Directorate and close about 150 inefficient local offices. - Introduction of a simplified taxation regime in key economic sectors by end-December (structural benchmark); request to EU to increase the VAT registration threshold. - Financing strategy and debt management - Objectives: extend maturity of domestic debt while building the yield curve; consolidate financial buffers. - A “euro medium-term notes” program in final stages; first Eurobond expected to be issued by mid-year; government issued a five-year fixed-rate Eurobond for €1½ billion. - Buffers being built to reach approximately four months of financing needs in 2011–12. - Formal review of debt management strategy with IMF, EC, and World Bank in 2011. ### VI. Structural reforms — SOEs, transport, energy, labor, and social protection - SOE governance and operational reforms - Regular independent external audits, quarterly publication of financial data, and reinforcement of OECD corporate governance (structural benchmark). - Financial control of SOEs to be moved from line ministries to the MOPF with enhanced reporting mechanisms. - Action plans to be developed by mid-July to restructure SOEs and reduce arrears (structural benchmark). - For largest majority-state SOEs: introduce private management experience; fill key management positions after open international search; prohibit contract extensions for existing managers beyond January 1, 2012. - Transport sector measures - Major infrastructure projects using EU funds approved and execution beginning. - Offer minority stakes in CFR Marfa and TAROM to bring in private management and capital; a 20 percent stake in CFR Marfa to be offered by IPO or strategic investor by end-2011. - Specific operational targets: personnel reductions, closure of low-use rail lines, reduction of public service obligations, tariff adjustment authority, and Metrorex maintenance cost reduction by 30 percent by end-2011. - Energy sector measures - Privatization plans: private stakes in Hidroelectrica, Nuclearelectrica, Electrica Serv, and three energy complexes; appoint legal advisors for privatizations by mid-July (structural benchmark). - Restore ANRE full operational and financial autonomy; present roadmap for phasing out regulated prices and protect vulnerable groups. - Government to issue an ordinance enabling separate pricing formulae for households and non-residential customers (prior action). - State-owned generation companies required to sell output through OPCOM Power Exchange to prevent below-market bilateral contracts. - Labor and social protection reforms - New Labor Code enacted April 30 to promote fixed-term and temporary employment and increase flexibility. - Social Dialogue Code promulgated after Constitutional Court clearance to make wage-setting more flexible. - Social Assistance Code drafted to consolidate 54 categories of social benefits into 9. - Social benefit reforms expected to yield fiscal savings of around 0.8 percent of GDP in 2010–13. ### VII. Financial sector, monetary policy, and safeguards - Banking system indicators - Bank profitability turned positive in Q1 2011; average capital ratio 14.75 percent; all banks above 11 percent. - Non-performing loan ratio: Dec-08 2.8; Dec-09 7.9; Mar-10 9.1; Jun-10 10.2; Sep-10 11.7; Dec-10 11.9; Mar-11 12.7. - Loan loss ratio: Dec-08 6.5; Dec-09 15.3; Mar-10 17.2; Jun-10 17.8; Sep-10 20.2; Dec-10 20.8; Mar-11 22.0. - Return on assets: Dec-08 1.6; Dec-09 0.2; Mar-10 0.5; Jun-10 -0.1; Sep-10 -0.2; Dec-10 -0.1; Mar-11 0.5. - Loans to deposit ratio: Dec-08 122.0; Dec-09 112.8; Mar-10 113.2; Jun-10 117.5; Sep-10 116.3; Dec-10 113.5; Mar-11 114.8. - Regulatory and prudential measures - NBR to remain vigilant; some small- and medium-sized banks may require further capital. - Commitment to introduce IFRS accounting standards in the banking system beginning in 2012; NBR to release consultation drafts for prudential filters by end-June. - Central bank developing regulations to discourage un-hedged consumer borrowing in foreign currency. - Passage of amendments to DGF law to allow use of DGF resources for restructuring delayed; revised timing end-November 2011 (modified benchmark). - Monetary stance and exchange rate - Policy rate on hold at 6.25 percent since May 2010. - Reserve requirements: 20 (down from 25 percent) for foreign currency liabilities and 15 percent for local currency liabilities. - Nominal effective exchange rate appreciated by about 4 percent in first quarter. - Staff recommendations: tighten monetary policy if inflation risks materialize; increase open market operations to mop up excess liquidity; an increase in the policy rate and possibly higher reserve requirements may be necessary soon. ### VIII. Program conditionality, performance, and financing - Stand-By Arrangement (SBA) key parameters - Access: SDR 3,090.6 million, 300 percent of quota. - Length: 24 months. - SDR 60 million made available after effectiveness on March 31, 2011; SDR 430 million made available subject to completion of this review; seven subsequent disbursements totaling SDR 2,600.6 million contingent on subsequent reviews. - Precautionary nature and Fund exposure - Arrangement treated as precautionary; no new financing gap envisaged in staff baseline. - Fund credit outstanding would peak in 2011 at 35.5 percent of gross reserves. - Direct public indebtedness expected to remain under 40 percent of GDP; public external debt peaking around 15 percent of GDP in 2012. - Quantitative targets and implementation status (selected) - Change in net foreign assets (mln euros) end-2010 actual stock: 20,026; March PC: 119 (PC met with a WB disbursement adjuster of €300 million). - Floor on general government overall balance (mln lei) end-2010 actual: -33,621; March/June/Sept/Dec program points include -7,289; -5,254; -12,600; -17,500; -23,953. - Stock of central government and social security arrears (bn lei) end-2010: 0.19; subsequent values include 0.20; 0.13; 0.20; 0.15; 0.10. - Stock of arrears of key SOEs (bn lei): 18.1 (2010 actual); subsequent values 19.5; 19.2; 19.5; 19.0; 18.0. - Stock of local government arrears (bn lei): 0.91; 0.95; 0.82; 0.90; 0.85; 0.80. - General government current primary spending (mln lei, cumulative): 131,938 (2010 actual); March/June/Sept/Dec points include 32,000; 30,670; 64,000; 95,100; 128,200. - Implementation status as of March 31, 2011: all listed quantitative performance criteria, indicative targets, and inflation consultation bands—Met; selected structural benchmarks met and others reset with revised dates. ### IX. Staff appraisal and recommendations - Macroeconomic assessment - Romania is beginning to reap benefits of adjustment: booming exports, gradual domestic demand recovery, lower CDS spreads, restarted capital inflows, and currency appreciation. - Competitiveness remains adequate; growth mainly export-driven on core euro area recovery. - Fiscal and structural priorities - Continue focus on health sector reforms to contain drug and hospital costs and avoid re-emergence of arrears. - Expand arrears clearance from central government to local governments and SOEs with settlement mechanisms consistent with EU rules. - Accelerate SOE restructuring and privatization to reduce operating losses and arrears. - Strengthen public investment prioritization and accelerate EU funds absorption. - Improve tax administration to expand the tax base over time, enabling potential rate reductions. - Monetary policy guidance - Central bank should be prepared to tighten policy to meet the 2012 inflation target. - Near-term recommended actions: increase open market operations, consider policy rate increase possibly supported by higher reserve requirements, maintain differential between reserve requirements for local currency and FX, and avoid letting central bank balance sheet considerations unduly affect policy. - Program recommendation - Staff supports completion of the first review under the SBA and recommends approval of proposed modifications of program conditionality as set out in the attached Letter of Intent. *Source: _cr11158 - 1. Key Health Care Reform Measures Implemented with the World Bank Assistance and related IMF staff report excerpts as provided.* ### 1. Key Health Care Reform Measures Implemented with the World Bank Assistance ..................... 10 ### 1. Key Health Care Reform Measures Implemented with the World Bank Assistance ..................... 10 ### I. INTRODUCTION AND SUMMARY - Recovery and growth - Growth is expected to reach 1½ percent this year, and accelerate to 3¾–4 percent in 2012. - Inflation expected to remain above 5 percent, exceeding the central bank’s inflation target (3 percent ± 1 ppt) in 2011 before gradually returning to the target range in 2012. - Strong export performance expected to stabilize the current account deficit below 5 percent in 2011–12. - Program implementation - Authorities met all performance criteria for the first review, including on arrears for the central government and the indicative targets for SOE deficits and arrears. - Structural benchmark stock-taking confirmed substantial arrears in state-owned enterprises and showed additional unpaid bills in the health sector. - Some structural benchmarks were delayed: amending legislation to permit use of the deposit guarantee fund for bank restructuring; issuing a government ordinance to eliminate legal basis for stimulente funds; shift in the VAT mandatory threshold and introduction of a simplified taxation system adjusted for consultation with European authorities. - Reform challenges - Ambitious structural reforms in energy and transport (pricing reforms, improved regulation, restructuring and privatization of SOEs). - Strengthening managerial oversight and governance of SOEs and improving public sector efficiency. - Political constraints likely to intensify as the 2012 elections approach. - Fiscal performance on track for 2011 but achieving 2012 objectives will likely require additional adjustment and resistance to pressures for tax cuts or expenditure increases. ### II. MACROECONOMIC DEVELOPMENTS AND OUTLOOK - Recent developments - Q1 2011 growth: 0.6 percent (qoq), driven by strong exports, particularly automotive. - Registered unemployment rate: 5.9 percent in March. - CPI inflation: jumped to 8.3 percent in April from 7.0 percent in January. - Core inflation (Core 3 indicator) has risen; wages and unit labor costs have not yet reflected higher inflation expectations. - Sovereign CDS spread narrowed by around 70 basis points since January; equity markets gained more than 7 percent. - Leu appreciated by 4 percent against the euro since late 2010. - Current account deficit improved from 13.4 percent of GDP in 2007 to 4.1 percent of GDP in 2010. - International reserves met the end-March NFA target by some €169 million. - Macroeconomic outlook (2011–12) - Growth - Expected 1½ percent in 2011, driven by strong external demand. - Expected 3¾–4 percent in 2012 as supply shocks recede and domestic demand recovers. - Growth expected to remain somewhat above the 3–3 ½ percent estimated increase in potential output in 2013–16, allowing the output gap to close by 2016. - Inflation - Staff expects headline CPI to recede to around 5.7 percent by the end of 2011, breaching the NBR’s inflation target. - For 2012, a further disinflation towards the central bank’s target (3 percent +1 ppt.) is expected, though policy action may be needed. - Note: forecast includes elimination of heating subsidy at the central government level, contributing 0.6 percent increase in annual inflation. - External position - Current account deficit projected to stabilize at under 5 percent of GDP in 2011–12. - No new financing gap envisaged under staff’s baseline scenario; program is precautionary. - Risks - Downside: domestic political tensions, spillovers from euro area periphery turbulence, potential financial sector effects in an extreme event. - Upside: faster recovery in consumer confidence and rapid implementation of structural reforms. - Inflation risks tilt to the upside (commodity prices, administered price adjustments, excessive capital inflows); downside inflationary pressures from large output gap and appreciating currency. ### III. POLICY DISCUSSIONS — FISCAL POLICIES - 2011 fiscal performance - Authorities on track to meet their 2011 deficit target of 4.4 percent of GDP. - Fiscal data through April show a deficit well below program. - Tax revenues slightly higher than anticipated; current and capital expenditures lower. - Estimated mid-year reallocation needed: about 0.2 percent of GDP to accommodate health sector unpaid bills before they become arrears. - Expenditure reform measures in 2011 - (i) Further rationalization of public employment linked to functional reviews of important ministries; public employment fell by another 15,000 (to 1.25 million) in the first quarter of 2011. - (ii) Replacement of central government heating subsidies with targeted assistance and streamlining of social assistance. - (iii) Elimination of stimulente funds (structural benchmark, end-August). - (iv) Temporary increase in distribution of dividends from profitable SOEs in 2011 and 2012 to pay unregistered bills uncovered in stocktaking. - (v) Ongoing health sector reforms. - Challenges for 2012 fiscal target - Significant challenges remain to achieve the 3 percent of GDP deficit target (cash and accrual) in 2012. - Authorities’ plan assumes savings from pension reform, means testing, and expenditure restraint (wage bill and subsidies). - Additional measures likely needed: adjustment of about ½ percent of GDP required to cover inclusion of several loss-making SOEs in general government accounts. - Political pressures to reduce social contribution rates and fully restore remainder of the 25 percent public wage cut passed in mid-2010. - Staff advocacy: concentrate on further expenditure containment rather than additional revenue measures. - Arrears and unpaid bills - Central government and social security arrears declined in Q1; local government arrears declined. - Total SOE arrears grew by about ¼ percent of GDP to more than 4 percent of GDP. - Stocktaking revealed unpaid bills at the general government level, mainly in health (about 0.1 percent of GDP) and VAT-related local bills (about 0.1 percent of GDP), plus others under dispute in courts. - Authorities’ arrears action plan: - Health: verify bills and clear all arrears by end-2011; continued health reforms to prevent new arrears. - Local governments: January 2011 amendment to local government public finance law bans accumulation of arrears and requires balanced budget execution, including unpaid bills. - SOEs: strategies include bankruptcy procedures, scheduled repayment, netting out of arrears within general government, provision of state resources to clear arrears (with EU competition authority clearance), restructuring and securitization, and debt-equity swaps; restructuring timed to prevent new arrears (structural benchmark, LOI ¶7). - Administrative reforms: design commitment control and reporting module for all levels of government by end-September 2011 as part of integrating accounting reporting with the Treasury payment system. - EU structural funds and capital spending - Strengthening administrative capacity of units managing structural funds, including expert assistance to beneficiaries. - Structural funds unit moved from Ministry of Public Finance to the Prime Minister’s office to improve coordination. - Database of all central-level investment projects expected to be completed by June; final report with action plan on prioritizing investment expected by end-September (structural benchmark). - Amend public procurement legislation to align with EU law; develop standard bidding documents for key sectors. ### IV. HEALTH SECTOR REFORMS AND FISCAL IMPLICATIONS - Reforms under way (LOI ¶13) with World Bank assistance - Major redesign of the publicly insured basic benefits package being undertaken to take effect in 2012. - IT reforms: introduction of electronic prescriptions, strict drug use protocols, and national health cards in 2012 to control fraud and monitor spending. - Legislation for modest copayments expected to be passed by parliament in the coming months. - Continued focus on containing drug cost escalation. - Fiscal impact and payment of unpaid bills - Significant cost-cutting reforms implemented, aimed at improving efficiency and achieving EU average benchmarks. - Health expenditures likely to exceed the 2011 budget due to unpaid bills; an additional mid-year allocation is likely needed to cover unpaid bills before they become arrears. - Authorities will clear verified health sector arrears by end-2011. *Source: _cr11158 - 1. Key Health Care Reform Measures Implemented with the World Bank Assistance ..................... 10* ### 15. On the revenue front, tax administration reforms are underway to improve ### _cr11158 - 15. On the revenue front, tax administration reforms are underway to improve ### Revenue and tax administration - Ongoing IMF TA-supported measures to improve collections and fight tax evasion: - Setting up the high net wealth individual program. - Developing indirect audit methods to underpin a compliance risk strategy to be implemented by September. - Legislative and administrative actions: - Government will pass an ordinance on restructuring the tax administration (ANAF) (prior action) to staff the newly created Tax Verification Directorate and close about 150 inefficient local offices. - Introduction of a simplified taxation regime in key economic sectors by end-December to focus limited resources on medium and large taxpayers (structural benchmark). - Authorities will request from the EU an increase in the VAT registration threshold; those below the threshold to be moved to the simplified regime (structural benchmark). ### Health care reform measures (Box 1) - Implemented with World Bank assistance: - Drug benchmarking for major drug lists; - Reduction of hospital inpatient admissions by 10 percent; - Budget cuts for financing of 67 hospitals reducing financed hospital beds from 135,200 to 129,500 to be effective July 2011. Further reduction planned until 2013 to reach the EU average. - Elimination of mandatory contracting with all hospitals; - Design of mechanisms to allow higher financing for more complex treatments while reducing financing for others; - Reduction of physicians’ reimbursement based on capitation from 70 percent to 50 percent, and introduction of indicative caps for services; - Clarification of legislation on claw back tax for pharmaceuticals (effective end-April). ### Financing strategy and debt management - Strategy objectives: - Extend maturity of domestic debt while building the yield curve. - Consolidate financial buffers to guard against unforeseen shocks. - Continue regular presence in debt markets. - Specific measures and timelines: - A “euro medium-term notes” program is in the final stages of preparation. - The first Eurobond is expected to be issued by mid-year. - Buffers are being built to reach approximately four months of financing needs in 2011–12. - A formal review of the debt management strategy, with IMF staff, the EC, and the World Bank, will be conducted in 2011. ### Structural reforms — State-Owned Enterprises (SOEs) - Governance and ownership actions: - Regular independent external audits, quarterly publication of financial data, and reinforcement of OECD principles on corporate governance (structural benchmark). - Private management experience to be introduced into the largest SOEs that remain under majority government ownership. - Financial control of SOEs to be moved from line ministries to the MOPF with enhanced reporting mechanisms. - Action plans to be developed by mid-July to restructure SOEs and reduce their arrears (structural benchmark, LOI ¶7 and ¶19). ### Structural reforms — Transport and energy sectors - Transport sector measures: - Major infrastructure projects using EU structural funds approved and project execution beginning. - Revenue increases through better cost-recovery; cost reductions via staffing alignment, refocusing services, standard costs for contracts, and better control mechanisms. - Offer minority stakes in the cargo rail company (CFR Marfa) and the national air carrier (Tarom) to bring in private management and capital. - Energy sector measures: - Privatization plans to bring in investments via IPOs, sales of stakes to strategic partners and capital increases. - Government agreed to private stakes in additional companies including Hidroelectrica, Nuclearelectrica, Electrica Serv, and the three energy complexes in Craiova, Rovinari and Turceni. - Legal advisors to be appointed for privatization of some key firms by mid-July (structural benchmark). - Pricing and regulatory measures: - Restore the energy regulator’s (ANRE) full operational and financial autonomy. - Bring gas prices for non-residential consumers in line with the current formula. - Present a roadmap for phasing out regulated prices in electricity and gas while protecting vulnerable groups. - Government will shortly issue an ordinance enabling separate pricing formulae for households and non-residential customers (prior action). - State-owned energy generation companies required to sell output transparently through the OPCOM Power Exchange to prevent below-market bilateral contracts. - Over the medium term, develop a roadmap to overcome chronic problems in the district heating system. ### Other structural reforms — Labor and social protection - Labor market legislation: - New Labor Code enacted April 30 to promote fixed-term and temporary employment, extend probation periods, and increase flexibility of working hours. - Social Dialogue Code promulgated after Constitutional Court clearance to make wage-setting more flexible and better align wage growth with productivity; measures include raising representativity thresholds for trade unions and employers’ associations, abolishing collective bargaining at national level, and eliminating automatic ergo-omnes sectoral extension. - Social protection changes: - Streamline social assistance while protecting the vulnerable via means-testing of benefits. - Drafted Social Assistance Code to consolidate 54 categories of social benefits into 9. - Social inspection reduced number of beneficiaries of heating allowances by half in 2011. - Overall social benefit reforms expected to yield fiscal savings of around 0.8 percent of GDP in 2010–13. ### Financial sector policies and banking system indicators - Banking system health: - Bank profitability turned positive in the first quarter. - System remains well-capitalized, with an average capital ratio of 14.75 percent and all banks above 11 percent. - Non-performing loans (NPLs) continued to rise, albeit at a slower pace than in 2010; NPL ratio higher in domestic currency credits, particularly in the SME segment. - Deposits declined modestly, slightly increasing the loan to deposit ratio. - At end-March 2011, aggregate exposure to Romania of the nine largest foreign banks participating in the European Bank Coordination Initiative stood at 97 percent of the level when the initiative commenced. - Selected Romanian Banking System core indicators (in percent, reported at dates shown): - Capital adequacy ratio: Dec-08 13.8, Dec-09 14.7, Mar-10 15.0, Jun-10 14.3, Sep-10 14.6, Dec-10 14.7, Mar-11 14.8. - Leverage Ratio (Tier 1 capital / total average net assets): Dec-08 8.1, Dec-09 7.6, Mar-10 8.1, Jun-10 7.9, Sep-10 7.0, Dec-10 7.9, Mar-11 7.9. - Non-performing loan ratio: Dec-08 2.8, Dec-09 7.9, Mar-10 9.1, Jun-10 10.2, Sep-10 11.7, Dec-10 11.9, Mar-11 12.7. - Loan loss ratio: Dec-08 6.5, Dec-09 15.3, Mar-10 17.2, Jun-10 17.8, Sep-10 20.2, Dec-10 20.8, Mar-11 22.0. - Return on assets: Dec-08 1.6, Dec-09 0.2, Mar-10 0.5, Jun-10 -0.1, Sep-10 -0.2, Dec-10 -0.1, Mar-11 0.5. - Return on equity: Dec-08 17.0, Dec-09 2.9, Mar-10 6.0, Jun-10 -1.6, Sep-10 -2.1, Dec-10 -1.0, Mar-11 4.9. - Loans to deposit ratio: Dec-08 122.0, Dec-09 112.8, Mar-10 113.2, Jun-10 117.5, Sep-10 116.3, Dec-10 113.5, Mar-11 114.8. - Immediate liquidity ratio: Dec-08 34.4, Dec-09 35.3, Mar-10 37.1, Jun-10 35.9, Sep-10 36.7, Dec-10 37.9, Mar-11 37.2. - Source: NBR (notes clarify definitions and coverage). - Supervisory and regulatory notes: - NBR to remain vigilant to potential pockets of weakness and spillovers from Europe. - Some small- and medium-sized banks with high cost ratios, rising loan impairments, and lower than average provisions may continue to incur losses during 2011; further capital may be required in some cases under close oversight. - Subsidiaries of eurozone periphery banks are better capitalized than system average and constitute approximately 16 percent of system assets; in aggregate these banks comprise less than 7 percent of the market share. - Supervisor agreed to retain key aspects of the current prudent and simple approach to provisioning under IFRS to be introduced at the beginning of 2012. - Central bank developing new regulations to discourage un-hedged consumer borrowing in foreign currency (will not cover mortgage lending). - A measure enabling the Deposit Guarantee Fund (DGF) to facilitate new bank resolution and restructuring tools remains outstanding due to ongoing discussions with the European Commission (modified benchmark). ### Monetary and exchange rate policies - Recent policy actions and conditions: - After easing in 2010, monetary conditions started to tighten due to appreciation of the leu. - On March 31, the NBR eased its monetary stance by lowering reserve requirements on FX deposits. - Policy rate has been on hold at 6.25 percent since May 2010. - Reserve requirements now 20 (down from 25 percent) for foreign currency liabilities and 15 percent for local currency liabilities (including clauses for short-term and long-term with early withdrawal, repayment and transfer). - Nominal effective exchange rate appreciated by about 4 percent in the first quarter. - RON liquidity conditions tightened slightly with an uptick in interbank and bank lending rates in January-February. - NBR signaled a tightening policy bias in its May inflation report should underlying inflationary pressures materialize. - Capital inflows and policy toolkit: - Portfolio investment resurgence in Q1 2011; authorities wary of large destabilizing inflows. - To discourage short-term capital inflows while maintaining upward policy bias, authorities considered using instruments other than the policy rate, maintaining the large spread around the policy rate for interbank rates and allowing greater exchange rate fluctuations to introduce uncertainty in investment returns. - Staff suggested scope to accumulate additional reserves. - Competitiveness and exchange rate assessment: - Recent appreciation of the leu and higher inflation partially reversed the 15 percent improvement in competitiveness since mid-2007 (REER measure). - Extended CGER analyses at end-2010 yield estimates ranging from undervaluation of -0.1% to overvaluation of 5.2%; overall assessment: No misalignment. - Specific CGER findings: - Macroeconomic Balance: Slight overvaluation: 5.2 percent (suggested slight depreciation would close gap). - Equilibrium Real: No misalignment: 1.2% - External Sustainability: No misalignment: -0.1% - Overall assessment: No misalignment. - Current level of real exchange rate stabilizes NFA at -66 percent of GDP. - Romania’s export dynamics: - About 70 percent of Romania’s trade is with the EU, with Germany and Italy having the largest share. - Romania’s export share in world trade has increased, driven by improved terms of trade, EU membership, and export product diversification. *Source: _cr11158 - 15. On the revenue front, tax administration reforms are underway to improve (IMF staff report content provided).* ### 26. The attached Letter of Intent (LOI) describes the authorities’ progress in ### _cr11158 - 26. The attached Letter of Intent (LOI) describes the authorities’ progress in ### Prior actions and conditionality adjustments - Prior actions proposed: - Completion of a stocktaking of arrears and unpaid bills as of end-December 2010 for the entire general government and SOEs (reset from structural benchmark for April 30, 2011). - Note: For local government SOEs, the stocktaking of arrears and unpaid bills as of end-December will be completed by end-June 2011. - Passage of the government decision on ANAF restructuring. - Approval of a government ordinance separating the Unitary Gas Cost (CUG) prices between households and non-residential customers and allowing the regulator, ANRE, full autonomy to adjust the CUG price to non-residential customers. - Rationale: - Completion of the arrears stocktaking will allow design of mechanisms to permanently address arrears in the government and SOEs. - Decision on ANAF restructuring is essential for improving tax administration and creating space for eventual reduction in tax rates. - CUG pricing decision will permit energy price adjustment needed for energy sector reforms without unduly burdening household consumers. ### Revisions and new structural benchmarks - Timeframe revisions (resets): - Introduction of a simplified taxation system for smaller taxpayers under the VAT threshold: shifted to Dec 31, 2011 (reset from June 30, 2011). - Elimination of the legal basis of stimulente funds: reset to Aug 31, 2011 (reset from June 30, 2011); effective January 1, 2012. - Amend legislation to allow the DGF (deposit guarantee fund) resources to facilitate bank restructuring: reset to Nov 30, 2011 (reset from July 31, 2011). - New structural benchmarks (focus on SOE reforms): - By July 15, 2011: (i) preparation of action plans for remaining central government SOEs; (ii) design of mechanisms to facilitate restructuring and securitizing SOE arrears; (iii) appointment of legal advisors for partial privatization of CFR Marfa, TAROM, Transelectrica, Transgaz, and Romgaz. - By Aug. 31, 2011: Approval of legislation to improve governance of SOEs. - Other structural benchmark: - Completion of a comprehensive review of the existing investment portfolio and production of a final report and an action plan by September 30, 2011. ### Program modalities and Fund exposure - Precautionary nature: - Romania is not expected to face actual balance of payments financing needs in 2011 and 2012; the Stand-By Arrangement (SBA) and EU financing commitments will continue to be treated as precautionary. - Even under a shock scenario in the euro area periphery, staff analysis suggests reserve buffers should be adequate to cover potential financing gaps from direct banking liquidity shocks and indirect economy-wide shocks. - Fund credit and repayment capacity: - Fund credit outstanding would peak in 2011 at 35.5 percent of gross reserves. - Peak payments would be in 2013–14 at 11.7 and 10.8 percent of gross reserves, respectively. - Peak payments would be around 8.7 and 7.6 percent of exports of goods and services. - Direct public indebtedness is expected to remain under 40 percent of GDP. - Public external debt peaking at around 15 percent of GDP in 2012. - Total external debt is projected to decline from its end-2010 level of 74.4 percent of GDP in the medium run. - Safeguards: - An updated safeguards assessment found a relatively strong safeguards framework while recommending measures to improve NFA reporting standards, sustain effective audit oversight, and enhance accounting disclosures. The authorities have agreed to implement the recommendations. ### Staff appraisal — macroeconomic and sectoral findings - Macroeconomic recovery and external environment: - Romania is beginning to reap benefits of the adjustment over the past 2½ years: booming exports, gradual recovery in domestic demand, lower CDS spreads, restarted capital inflows, and currency appreciation. - Competitiveness remains adequate; growth mainly export-driven on core euro area recovery. - Banking sector: - Despite high NPLs, the banking sector remains liquid and well-capitalized due to strong supervision and parent bank support. - Risks: - NPLs expected to continue rising; smaller locally-owned banks without parent support need close monitoring. - Authorities should elaborate contingency plans and develop procedures to use enhanced bank resolution powers. - Authorities should prepare for potential impact from banking turbulence in the euro area periphery. - Fiscal situation and challenges (noted ahead of the 2012 election year): - Fiscal reforms have put government on track to reach its 2011 fiscal deficit; pension, social benefits, and public wage reforms should yield additional savings. - Specific fiscal challenges: - Significant pressures in the health care sector, especially drug reimbursement policy; further reforms required to stay within budget and avoid arrears. - Need to expand arrears clearance from central government to local governments and SOEs; settlement mechanisms must ensure conditional central government financing and consistency with EU regulations. - SOE arrears constitute a large drag on activity and could threaten fiscal stability and growth. - Public wage bill growth must be restrained; Constitutional Court decision may require reversal of 2010 wage cuts but must be consistent with 2012 deficit objective and unified wage system; further public employment restructuring is crucial. - Further reforms in capital spending to prioritize projects with international support and highest returns; need to accelerate absorption of EU structural funds. - Tax administration improvements are advancing too slowly, leaving high tax rates on a narrow base and a large informal sector; over time, improved administration should allow gradual rate reductions as the base expands. - Declining risk premium and favorable capital flows provide opportunity to build deeper fiscal financing buffers and extend the yield curve. - SOE and market reforms: - Faster implementation of energy market and transport sector reforms is needed to improve pricing frameworks and regulatory independence and transparency. - Staff welcomes authorities’ plans for more aggressive private participation and urges consideration of majority privatization in some cases and private independent managerial oversight to improve SOE governance. - Enhanced monitoring and strengthened governance needed to reverse operating losses and mounting arrears. - Monetary policy guidance: - The central bank should be prepared to tighten monetary policy to assure achievement of its 2012 inflation target. - Indicators suggesting elevated inflation risk: further expected hikes in administered prices, rising core inflation, increasing inflation expectations and elevated risk of second-round effects. - Recommended near-term actions: - Increase open market operations to mop up excess liquidity and bring market rates closer to the policy rate. - An increase in the policy rate, possibly supported by higher reserve requirements, may be necessary soon. - Maintain some differential between reserve requirements in local currency and FX to discourage excessive FX credit growth. - Avoid letting central bank balance sheet considerations unduly affect monetary policy decisions. - The latest reduction in reserve requirements for forex deposits appears to have been counterproductive. ### Staff recommendations and decisions - Staff supports the authorities’ request for completion of the first review under the new SBA based on Romania’s performance. - Staff recommends approval of the proposed modification of program conditionality as set out in the attached Letter of Intent. ### Stand-By Arrangement (Box 3) — key parameters and conditionality - Access: SDR 3,090.6 million, 300 percent of quota. - Length: 24 months. - Phasing: - SDR 60 million made available after arrangement effective on March 31, 2011. - SDR 430 million will be made available subject to completion of this review. - Seven subsequent disbursements totaling SDR 2,600.6 million contingent upon completion of the second to the eighth reviews. - Conditionality highlights: - Quantitative Performance Criteria include: - A floor on the change in net foreign assets. - A ceiling on central government and social security domestic arrears. - A floor on the overall general government cash balance. - A ceiling on general government guarantees. - Non-accumulation of external debt arrears. - Quantitative Indicative Targets include: - A ceiling on general government current primary spending. - A ceiling on local government domestic arrears. - A floor on the operating balance and a ceiling on arrears of the key loss-making SOEs. - A consultation band around the 12-month rate of inflation of consumer prices. - Prior actions (listed under Prior actions and conditionality adjustments). - Selected numerical program targets and outcomes (Table 1 highlights): - Change in net foreign assets (mln euros): end-2010 actual stock 20,026; March program targets include -50 and 119 for specified columns and 250, 500, 500 for later dates as presented. - Floor on general government overall balance (mln lei): end-2010 actual -33,621; March and subsequent program targets include -7,289; -5,254; -12,600; -17,500; -23,953 as presented. - Stock of central government and social security arrears (bn lei): end-2010 0.19; subsequent values include 0.20; 0.13; 0.20; 0.15; 0.10. - Ceiling on general government guarantees issued since end-2008 (face value, bn lei): values shown include 7.6; 14.0; 8.1; 14.0; 14.0; 14.0. - Inflation consultation bands and center point (12-month rate of inflation): - Center point series: 8.0; 7.0; 8.0; 6.8; 4.2; 3.7. - Inner band (upper limit) examples: 8.0; 7.8; 5.2; 4.7. - Outer band (upper limit) examples: 9.0; 8.8; 6.2; 5.7. - General government current primary spending (mln lei, cumulative during calendar year): 131,938 (2010 actual); March/June/Sept/Dec program cumulative points include 32,000; 30,670; 64,000; 95,100; 128,200. - Operating balance of key SOEs (bn lei): -6.4 (2010 actual); targets and preliminary values include -1.7; -0.7; -2.7; -3.6; -4.0. - Stock of arrears of key SOEs (bn lei): 18.1 (2010 actual); subsequent values 19.5; 19.2; 19.5; 19.0; 18.0. - Stock of local government arrears (bn lei): 0.91 (2010 actual); subsequent values 0.95; 0.82; 0.90; 0.85; 0.80. - Memorandum: Revenue of general government, net of EU funds (mln. lei): 159,141 (2010 actual); cumulative program points include 40,100; 40,238; 82,250; 127,000; 171,000. - Implementation status (selected items, March 31, 2011): - Quantitative performance criteria: Floor on general government overall balance — Met; Ceiling on general government guarantees — Met; Ceiling on central government and social security domestic arrears — Met; Non-accumulation of external debt arrears — Met; Floor on net foreign assets — Met. - Quantitative indicative targets: Ceiling on general government current primary spending — Met; Ceiling on local government domestic arrears — Met; Floor on operating balance and ceiling on arrears of key loss-making SOEs — Met. - Inflation consultation band: Inner band — Met; Outer band — Met. - Structural benchmarks: Preparation of strategic action plans for key SOEs (April 30, 2011) — Met. Completion of the arrears stocktaking as of end-December 2010 (April 30, 2011) — Reset as prior action. Remaining structural benchmarks shown with reset or proposed dates as summarized above. *Source: _cr11158 - 26. The attached Letter of Intent (LOI) describes the authorities’ progress in implementing their economic program and sets out their commitments through end-June 2011.* ### 2. Approve legislation to improve governance of SOEs (¶20). ### 2. Approve legislation to improve governance of SOEs (¶20) ### Macroeconomic output and prices - Real GDP: 6.3 (2007); 7.3 (2008); -7.1 (2009); -1.3 (2010); 1.5 (2011, prog.); 1.5 (2012, proj.); 3.9 (2013, proj.). - Contributions to GDP growth: - Domestic demand: 14.2 (2007); 7.3 (2008); -12.9 (2009); -1.0 (2010); 1.2 (2011); 0.9 (2012); 3.8 (2013). - Net exports: -9.6 (2007); -1.0 (2008); 7.5 (2009); -0.2 (2010); 0.2 (2011); 0.6 (2012); -0.1 (2013). - Consumer price index (CPI, average): 4.8 (2007); 7.8 (2008); 5.6 (2009); 6.1 (2010); 5.4 (2011); 6.8 (2012); 4.6 (2013). - CPI (end of period): 6.6 (2007); 6.3 (2008); 4.7 (2009); 8.0 (2010); 3.7 (2011); 5.7 (2012); 3.6 (2013). - Producer price index (end of period): 7.6 (2007); 15.3 (2008); 1.9 (2009); 6.3 (2010). ### Labor market and wages - Unemployment rate (average): 4.3 (2007); 4.0 (2008); 6.3 (2009); 7.6 (2010); 6.6 (2011); 6.1 (2012); 5.8 (2013). - Nominal wages: 22.7 (2007); 23.7 (2008); 8.5 (2009); 2.4 (2010); 4.7 (2011); 5.7 (2012); 7.0 (2013). ### Saving and investment - Gross domestic investment (percent of GDP): 31.0 (2007); 31.3 (2008); 25.3 (2009); 26.5 (2010); 24.6 (2011); 26.0 (2012); 26.1 (2013). - Gross national savings (percent of GDP): 17.6 (2007); 19.7 (2008); 21.1 (2009); 22.3 (2010); 19.5 (2011); 21.3 (2012); 21.2 (2013). ### General government finances (percent of GDP) - Revenue: 32.3 (2007); 32.2 (2008); 31.4 (2009); 32.8 (2010); 33.3 (2011); 33.1 (2012); 33.7 (2013). - Expenditure: 35.4 (2007); 37.0 (2008); 38.7 (2009); 38.7 (2010); 39.4 (2011); 37.7 (2012); 36.8 (2013). - Fiscal balance: -3.1 (2007); -4.8 (2008); -7.3 (2009); -6.5 (2010); -4.4 (2011); -4.4 (2012); -3.0 (2013). - Privatization proceeds (excludes planned privatizations under the program): 0.1 (2007); 0.0 (2009); 0.1 (2010); 0.0 (2011); 0.1 (2012); 0.0 (2013) — as reported across table entries. - Structural fiscal balance (2/ actual fiscal balance adjusted for the automatic effects of the business cycle): -5.8 (2007); -8.3 (2008); -7.0 (2009); -5.1 (2010); -2.5 (2011); -2.7 (2012); -1.7 (2013). ### Public debt and financing - Gross public debt (direct debt only): 17.5 (2007); 19.5 (2008); 27.4 (2009); 34.7 (2010); 36.1 (2011); 37.2 (2012); 37.3 (2013). - Gross public debt (consolidated reporting in RON millions): 109,752 (2008); 147,329 (2009); 193,894 (2010); 204,184 (2011); 217,850 (2012); 235,125 (2013). - Gross public debt excl. guarantees (percent of GDP): 19.5 (2007); 27.4 (2008); 34.7 (2009); 36.1 (2010); 37.2 (2011); 37.3 (2012); 36.8 (2013). - Identified debt-creating flows and projections summary: - Change in public sector debt: -0.3 (2006); 2.1 (2007); 2.0 (2008); 7.9 (2009); 7.3 (2010); 2.5 (2011); 0.1 (2012). - Primary deficit (percent of GDP): 0.6 (2006); 2.4 (2007); 4.1 (2008); 6.1 (2009); 5.1 (2010); 2.7 (2011); 1.3 (2012); 1.0 (2013); 0.5 (2014); 0.2 (2015); 0.0 (2016). - Debt-stabilizing primary balance: -1.2 (projection for stabilization given baseline debt path). ### Monetary aggregates and credit - Broad money (M3) growth (annual percent change): 33.7 (2007); 17.5 (2008); 9.0 (2009); 6.9 (2010); 10.3 (2011); 10.2 (2012); 15.2 (2013). - Credit to private sector (annual percent change): 60.4 (2007); 33.7 (2008); 3.7 (2009); 0.9 (2010); 4.7 (2011); 7.7 (2012); 7.0 (2013); 7.3 (2014 projected in table breakdown). - Reserve money (levels): 51,662 (Dec-09); 55,103 (Dec-10); 49,881 (Dec-11 Q1); 51,336 (Dec-11 Q2); 53,717 (Dec-11 Q3); 60,009 (Dec-11 Q4); 66,011 (Dec-12 proj). ### Interest rates and central bank rates - Euribor, six-months: 4.8 (2007); 3.5 (2008); 4.5 (2009); 1.2 (2010). - NBR policy rate (end of period): 7.5 (2007); 10.3 (2008); 8.0 (2009); 6.3 (2010). - NBR lending rate (Lombard): 12.0 (2007); 14.3 (2008); 12.0 (2009); 10.3 (2010). - Interbank offer rate (1 week): 7.1 (2007); 12.7 (2008); 10.7 (2009); 3.6 (2010). ### Balance of payments and external sector - Current account balance (percent of GDP): -13.4 (2007); -11.6 (2008); -4.2 (2009); -4.1 (2010); -5.0 (2011); -4.7 (2012); -4.9 (2013). - Merchandise trade balance (percent of GDP): -14.3 (2007); -13.7 (2008); -5.8 (2009); -4.9 (2010); -5.1 (2011); -4.5 (2012); -4.6 (2013). - Capital and financial account balance (percent of GDP): 17.6 (2007); 12.7 (2008); -2.5 (2009); 1.2 (2010); 5.3 (2011); 3.5 (2012); 8.5 (2013). - Foreign direct investment balance (percent of GDP): 5.7 (2007); 6.7 (2008); 3.0 (2009); 2.2 (2010); 2.9 (2011); 3.1 (2012); 3.2 (2013). - Gross official reserves (in billions of euros): 23.0 (2007); 20.2 (2008); 26.2 (2009); 29.5 (2010); 31.7 (2011); 29.2 (2012); 29.4 (2013). - Gross external debt (percent of GDP): 47.1 (2007); 51.8 (2008); 69.0 (2009); 74.4 (2010); 78.9 (2011); 74.0 (2012); 71.9 (2013). ### Balance-sheet and financial soundness indicators - Banking system: capital to risk-weighted assets ranged from 13.8 (2008) to 14.8 (Mar-2011). - Nonperforming loans (NPLs) to total gross loans: 2.8 (2008 Dec) rising to 12.7 (Mar-2011). - Return on assets: 1.6 (2008 Dec); -0.3 (Mar-2009); 0.4 (Mar-2011). - Liquid assets to total assets: 47.1 (2008 Dec); 58.8 (Mar-2011). - Lending in foreign exchange, percent of non-government credit: 57.8 (2008 Dec); 62.2 (Mar-2011). ### Gross financing and program financing (selected items) - Total financing requirements (I. Total financing requirements, 2012 totals in table): 37.6 (2012 total). - I.A. Current account deficit (part of financing requirements): 5.0 (2012 total). - I.B. Short-term debt (part of financing requirements): 20.8 (2012 total). - II. Total financing sources (2012 total): 34.2. - III. Increase in gross reserves (2012): 3.5. - IV. Financing Gap: 8.0 (aggregate table line). - V. Program financing (2012): 8.0, including IMF purchases: 4.3 (IMF purchases line). ### Fiscal composition (selected breakdowns, percent of GDP) - Taxes: 27.9 (2008); 27.4 (2009); 27.0 (2010); 28.1 (2011); 27.9 (2012); 27.6 (2013). - Value-added taxes: 7.9 (2008); 6.9 (2009); 7.6 (2010); 8.1 (2011); 8.5 (2012); 8.5 (2013). - Social security contributions: 9.5 (2008); 9.6 (2009); 8.9 (2010); 9.2 (2011); 9.1 (2012); 8.8 (2013). - Current expenditure: 32.5 (2008); 34.8 (2009); 35.7 (2010); 33.9 (2011); 33.7 (2012); 33.0 (2013). - Compensation of employees: 8.9 (2008); 9.4 (2009); 8.3 (2010); 7.5 (2011); 7.5 (2012); 7.2 (2013). - Transfers (including pensions): 15.1 (2008); 16.7 (2009); 18.5 (2010); 17.8 (2011); 17.6 (2012); 17.8 (2013). - Capital expenditure: 4.6 (2008); 4.4 (2009); 3.8 (2010); 3.7 (2011); 3.7 (2012); 3.7 (2013). ### Public sector debt sustainability (selected projections and scenarios) - Baseline public sector debt (percent of GDP): 15.4 (2006); 17.5 (2007); 19.5 (2008); 27.4 (2009); 34.7 (2010); 37.2 (2011); 37.3 (2012); 36.8 (2013). - Gross financing need (percent of GDP): 1.8 (2006); 3.9 (2007); 6.2 (2008); 8.4 (2009); 7.1 (2010); 5.6 (2011); 4.9 (2012); 9.0 (2013); 7.7 (2014); 5.2 (2015); 4.7 (2016). - Scenario with no policy change (constant primary balance) in 2011-2016: public debt-to-GDP projections: 37.2 (2011); 38.8 (2012); 39.9 (2013); 41.0 (2014); 42.3 (2015); 43.6 (2016). ### External debt sustainability (selected projections) - External debt (percent of GDP): 42.1 (2006); 47.1 (2007); 51.8 (2008); 69.0 (2009); 74.4 (2010); 74.0 (2011); 71.9 (2012); 67.3 (2013); 63.3 (2014); 59.2 (2015); 57.2 (2016). - Gross external financing need (in billions of euros): 21.7 (2006); 35.9 (2007); 46.2 (2008); 34.9 (2009); 32.3 (2010); 34.2 (2011); 39.2 (2012); 48.2 (2013); 50.3 (2014); 49.9 (2015); 52.5 (2016). - External debt-to-exports ratio (percent): 131.0 (2006); 160.9 (2007); 170.3 (2008); 224.5 (2009); 207.3 (2010); 196.1 (2011); 189.5 (2012); 180.0 (2013); 171.5 (2014); 161.8 (2015); 157.3 (2016). _Italic: Source: IMF staff estimates and projections; Romanian authorities; data as presented in the provided tables._ ### 1. The new economic program supported by the International Monetary Fund (IMF), the ### _cr11158 - 1. The new economic program supported by the International Monetary Fund (IMF), the ### Macroeconomic outlook and risks - Growth projections: - 2011: growth of 1½ percent. - 2012: rising to 3¾–4 percent, driven by continued strong exports and gradual recovery in domestic demand. - Inflation and administered prices: - Inflation is higher than expected due to increased food and energy prices. - Inflation will remain above 5 percent for the remainder of the year, making the NBR’s end-2011 inflation target improbable. - External position: - Current account deficit: 4.1 percent of GDP in 2010. - Expected to remain below 5 percent of GDP in 2011–12. - Risks: - Recovery vulnerable to adverse developments in international financial markets via rising risk premia and more volatile capital inflows. - Downside risks to euro area recovery. ### Program performance and review request - Performance on quantitative targets and structural agenda: - All end-March 2011 quantitative performance criteria and indicative targets were observed. - Floor on general government balance met with a margin of 0.2 percent of GDP. - Inflation remained within the inner band of the inflation consultation mechanism throughout the period. - Structural benchmarks: - Preparation of strategic action plans for key SOEs completed. - Stocktaking of arrears for general government and SOEs completed; awaiting final audited accounts in SOEs to fully fulfill the structural benchmark (expected by Board meeting, prior action). - Request: - Government of Romania and the National Bank of Romania (NBR) request completion of the first review under the Stand-By Arrangement (SBA). - Arrangement to be treated as precautionary. ### Fiscal policy stance and targets - 2011 fiscal stance: - Committed to cash fiscal deficit target of 4.4 percent of GDP (or within 5 percent in ESA terms). - Revenues (net of EU funds) slightly above expectations in Q1 2011; current and capital expenditures below program, creating a comfortable margin. - Continued policies from LOI of March 10, 2011. - Maintain tight control on current spending; continue public employment rationalization (declined by another 15,000 to 1.25 million in Q1 2011). - Improve legislation to provide heating allowances by end-August to target vulnerable members of society while generating significant savings. - Temporary increase of dividends from 2010 and 2011 SOE profits to pay for unregistered bills uncovered in stocktaking. - Consider gradual reduction in social contributions if fiscal space emerges. - Improve tax administration (¶9) and reporting for SOEs added to ESA general government definition; with Eurostat technical assistance, enhance accrual-based fiscal deficit measurement. - Once reporting system functional, request amendment of performance criterion on general government overall balance to include operating balance of these entities. - 2012 fiscal stance: - Committed to bringing deficit down to within 3 percent of GDP (in both cash and ESA terms). - Measures required: continued expenditure restraint (wage bill and subsidies), possible additional measures to compensate for inclusion of SOEs into general government. - Health reforms, pension reform, and means testing for social programs to generate savings. - Strictly limit ad hoc tax changes to ensure predictability and stability. - Finalizing medium-term Fiscal Strategy for 2012–14 to improve 2012 budget planning, commit to expenditure ceilings, and solidify Maastricht targets. - Continue support for the independent Fiscal Council with adequate information and funding. ### Arrears, unpaid bills, and SOE action plan - Arrears status: - General government arrears (excluding SOEs) have declined; now below 0.2 percent of GDP (almost entirely local governments). - Stocktaking as of end-December 2010 revealed about 0.1 percent of GDP in unregistered bills in health sector and no unregistered bills at central government level. - Local-level unregistered VAT-related bills about 0.1 percent of GDP that do not require cash settlements. - SOE arrears rose in Q1 2011 by nearly 0.1 percent of GDP. - Action plan elements: - Health sector: verify bills and repay arrears in full by end-2011; continuation of health reforms is paramount. - Local level: amend local government public finance law to bar accrual of arrears and enforce it vigorously. - Payment terms: gradually reduce period for paying bills to central government and social security over next two years; transpose EU directive 7 into Romanian law on time. - SOE arrears mechanisms (to be developed by mid-July, structural benchmark): - (i) Move nonviable firms into bankruptcy. - (ii) Require firms with positive cash flow to pay down arrears on agreed schedules. - (iii) Develop arrangements to cancel or forgive arrears to the state itself. - (iv) Explore capital increases and/or financial support where appropriate and with EU competition clearance. - (v) Design and launch mechanisms to facilitate restructuring and securitizing SOE arrears. - (vi) Use debt-equity swaps or privatization proceeds where possible to cancel arrears. - Conditionality: firms’ participation strictly conditioned on successful execution of agreed action plans to prevent re-accumulation of arrears. - Treasury and reporting integration: - First phase of integration of accounting reporting with Treasury payment system completed in March. - Next phase (design of system including commitment control and reporting module for all government levels) to be completed by end-September 2011. ### Debt management, buffers, and market access - Strategy: - Focus on extending maturity of domestic debt, building yield curve, and consolidating financial buffers. - Finalizing documentation for “euro medium-term notes” program; expect to issue first bond under program by mid-year. - Committed to raising financial buffers to around four months of financing needs during 2011–12 and maintaining them there. - Conduct formal review of debt management strategy in 2011 with IMF, EC, and WB assistance. - Improve treasury IT systems and strengthen senior staffing. ### Tax administration and revenue measures - Tax administration improvements: - Implement ordinance relating to high net wealth individuals and government decision on indirect audit methods (progress made; additional efforts needed). - Organizational strategy and implementation plan to incorporate indirect audit methods by end-June 2011. - Pass government decision on ANAF restructuring (prior action) to staff Tax Verification Directorate by July and close approximately 150 regional offices by end-September. - Develop and implement compliance risk strategy by September 2011. - Expand e-filing, simplify tax forms and number of payments, and aim for a one-stop shop for tax payments. - Introduce IT systems and consolidate IT department in ANAF to improve tax administration. - Improve central point for screening and referral of potential tax fraud cases and strengthen guidelines for identification of tax fraud. - Specific measures: - Request shift in VAT mandatory threshold from EU Council of Ministers to €50,000 (structural benchmark, end-December 2011). - Prepare government ordinance to eliminate legal basis of all stimulente funds effective January 1, 2012 and pass it by end-August (structural benchmark). - Performance bonuses up to the 30 percent bonus limit (as defined in implementing legislation) may be granted to tax collectors for sustained revenue improvements. ### EU funds absorption, public investment prioritization, and procurement - EU funds absorption: - Accelerate absorption by strengthening administrative capacity of managing units and modernizing legislative/regulatory framework. - Moved EU structural funds coordination unit from MOPF to Prime Minister’s office and will strengthen authority and staffing. - Commit to completing all preaccession projects by agreed dates to avoid returning funds to EU. - Create facilities to reallocate budget resources during the year to ministries with best EU funds absorption performance. - Public procurement and PPP: - Improve procurement efficiency by developing standard bidding documents in key subsectors by end-September to reduce contestation grounds. - Revise PPP law by end-July to ensure conformity with EU procurement directives. - Investment prioritization: - Comprehensive review of existing investment portfolio to prioritize projects fundable within medium-term horizon (3–5 years). - Produce a database by June and final report and action plan by end-September 2011 (structural benchmark). - Discontinue low priority and non-performing projects not fully financeable within horizon. ### Health sector restructuring and reforms - Fiscal and arrears context: - Arrears nearly eliminated but additional unpaid bills of some RON 500 million uncovered in stocktaking; mid-year supplementary budget to address shortfall. - Significant savings expected when restructuring completed, but additional budgetary allocations likely needed until reforms fully implemented. - Population aging to be factored into medium-term spending projections. - Specific reform areas and measures: - Revenue enhancements: - Threshold for social contribution payments of pensioners lowered in 2011. - Clawback tax for pharmaceuticals implemented end-April. - Legislation for modest copayments approved by Senate and under Chamber of Deputies consideration; approval expected in coming months with copayments expected to go into effect in 2012. - Global spending measures: - Implement new IT systems; auditing of patient registries underway to be completed by end-2011. - New health cards for all participants as of 2012 to control fraud and monitor spending. - Reform benefits package with WB assistance to exclude costly nonessential services; implementation next year. - Hospital expenditures and restructuring: - As of April, 67 hospitals eliminated from system with incentives for conversion to nursing homes. - Three-year plan to reduce financed hospital beds to EU per capita average by 2013; number of beds to fall from 135,200 to 129,500 as of July. - Legislation approved to eliminate mandatory contracting with hospitals and introduce competitive contracting. - 2011 objective: 10 percent fewer inpatient admissions with corresponding hospital budget cuts. - Reclassification of hospitals underway to adjust future financing mechanisms based on complexity of treatment. - Pharmaceutical expenditures: - Savings anticipated via reference prices and greater use of generic drugs on schedules A, B, C1, and C3. - For C2 schedule, develop procedures to reduce spending including settlement prices and revising list of compensated/free drugs and moving to generics. - For 2012, further control of most expensive drugs via strict drug use protocols and new electronic prescription module for the National Health Information System. - Physician expenditures: - Reduced share of per-capita reimbursement of primary care physicians from 70 to 50 percent. - Producing indicative caps for quarterly services contracted with hospitals and physicians and prescriptions issued; will develop financial incentives for physicians who remain within ceilings. ### Social protection and inspection - Social protection reforms: - New Social Assistance Code drafted to consolidate existing 54 categories of social benefits into 9. - Social inspection efforts reduced number of heating allowance beneficiaries by half in 2011. - Overall social benefit reforms expected to yield fiscal savings of around 0.8 percent of GDP in 2010-13. - Targeting: - By end-August improve legislation to provide heating allowances targeted to vulnerable members while generating significant budget savings. ### Financial sector conditions and commitments - Banking sector indicators: - Non-performing loans: 12.7 percent of total loans as of end-March (compared to 11.9 percent in December 2010). - Banking sector returned to profitability in Q1 2011. - Average solvency ratio: 14.7 percent; all banks retained ratio above 11 percent. - Lending to private sector and deposits declined. - External parent bank commitments: - At European Bank Coordination Initiative meeting on March 16, parent banks of the nine largest foreign-owned banks affirmed long-term capital and exposure commitments to Romania (no quantitative targets). - Aggregate exposure of these banks at end-March 2011 stood at 97 percent of the level when the Initiative commenced. - Governance and supervision: - Commit to preserve good governance at banks, including state-owned banks, and safeguard operational independence. - Ensure all directors and managers are deemed by the NBR to be suitably experienced and ‘fit and proper’ for their responsibilities. *Document: Letter of March 10, 2011 and associated program text as provided in the source content.* ### 16. We continue to review the DGF, banking and winding-up legislation and will make ### 16. We continue to review the DGF, banking and winding-up legislation and will make ### Banking legislation, Deposit Guarantee Fund (DGF), and bank resolution - Continue review of the DGF, banking and winding-up legislation to ensure mutual consistency. - Parliamentary ratification of earlier amendments to the winding-up legislation remains to be completed. - Passage of amendments to the DGF law (to allow use of DGF resources, including through guarantees, to facilitate restructuring measures authorized by the National Bank of Romania regarding the transfer of deposits, including purchase and assumptions, if such use would be less costly than the direct payment of deposit guarantees) has been delayed by ongoing discussions with staff of the European Commission and the Fund. - Revised timing: structural benchmark now anticipated to be completed by end-November 2011 (modified benchmark). - Collateral for NBR lending operations: testing stage finished for expanding eligible collateral to include leu-denominated IFI issued bonds and euro-denominated sovereign bonds; implementation expected by end-May. ### IFRS introduction and prudential measures - Commitment to introduce IFRS accounting standards in the banking system beginning in 2012. - By end-June the NBR will release for consultation draft proposals for prudential filters that would preserve prudent bank solvency, provisions, and reserves. - Authorities will ensure, by the end of 2011, that: - the prudential treatment of debt-for-equity swaps does not result in a weakening of banks’ financial positions; - requirements are imposed for banks to have methodologies for valuing the equity at the lowest value applicable according to the accounting treatment. - NBR will consult the industry on regulatory proposals to ensure foreign currency credit to households is appropriately priced to reflect risk to unhedged borrowers. - Continued consultation with IMF and EC staff before introducing or amending other aspects of the regulatory framework. - Efforts to avoid adopting legislative initiatives (e.g., current draft of the personal insolvency law or proposals for the debt collecting law) which could undermine debtor discipline. - Footnote on prudential treatment of debt-for-equity swaps: must guarantee that (i) involvement of credit institutions unfolds on a prudent decision making process; (ii) value of equity is fully deducted from own funds to avoid artificial improvement in prudential indicators; and (iii) revenues from releasing loan-loss provisions due to these operations are not taxed, provided initial expenditures were not deductible. ### Monetary and exchange rate policy and inflation outlook - 2011 inflation target is now unlikely to be met due to unexpected surge in international food and energy prices and envisaged adjustment of administered prices. - Inflation consultation band with the Fund likely to be triggered later in the year. - Expectation: inflation to peak at 8½ percent in mid-year, before gradually declining to slightly above 5 percent by the end of 2011. - Noted risks: increases in core inflation remain limited so far, but high headline inflation presents risks of rising inflationary expectations and second round effects. - Policy response: shift monetary policy stance to a tightening bias and take action as needed to ensure 2012 inflation target is met. - Specific actions: - improve liquidity management to bring money market rates closer to the policy rate; - remain alert to potential risks of return of significant capital inflows as the economy recovers. - Recent leu appreciation: about 4 percent against the euro; has helped moderate inflationary pressures without significant competitiveness effects to date. - Footnote on upside risk: Elimination of heating subsidies by the central government would constitute an upside risk of about ½ percentage points to this inflation forecast and increases in transport tariffs will also boost inflation. ### Structural reforms — State-Owned Enterprises (SOEs) governance and operational reforms - Commitment to deep-rooted reform of SOEs, especially in energy and transport. - Indicative targets on operating balance and arrears of 18 key enterprises were met in the first quarter; action plans prepared for each. - Arrears data compiled from the 154 central government SOEs as agreed. - Ordinance 79/2008 amended to require regii autonome and enterprises subordinated to local governments to submit quarterly key financial and operational indicators to the MOPF; similar financial information to be provided for other central government SOEs as defined in the TMU. - Governance legislation to be developed and approved by end-August 2011 (structural benchmark) requiring: - regular independent external audits for all SOEs; - quarterly reporting and publication of financial data; - reinforcement of minority shareholder rights; - transfer of financial control of SOEs from line ministries to the MOPF; - inclusion of an application code to ensure OECD principles on corporate governance are applied; - prohibition of contract extensions for existing managers lasting beyond January 1, 2012. - For largest firms (to be determined by end-July) remaining under majority state control: - all key management positions (including CEO and CFO) to be filled only after open international search by internationally recognized HR firms; - selected managers to be given sufficient autonomy from undue interference; - board members selected by shareholders and vetted by independent experts; - existing managers and board members may submit applications and have qualifications considered; - management search to begin by end-August and private management teams to be selected by end-December to take office as soon as legally possible thereafter; - timetable may be adjusted where significant minority stakes are to be sold. - May require changing Emergency Ordinance 3/2011, limiting remuneration. ### Transport sector reforms and specific measures - Stepped-up efforts to improve transport infrastructure and operations of transport SOEs; additional infrastructure projects using EU structural funds approved and project execution beginning. - Roads (CNADNR): - boost revenues in 2011 while eliminating or renegotiating non-performing contracts; - create single road control authority for freight transport to enforce weight and licensing requirements; - remaining standard costs for building and maintaining roads to be approved by end-September and required on all new contracts; - personnel reduction by 622 positions by mid-July (compared with end 2010); - pay CNADNR arrears (currently RON 737 million) due to investment projects by end-August. - Railways: - extend policy of standard costs in railway system for infrastructure procurement and repairing rolling stock; - develop multi-annual plans for public procurement and investments in CFR Calatori and CFR Marfa; - continue to use fully depreciated assets in CFR Infrastructura, CFR Calatori and CFR Marfa; provide reintegration and training for restructured personnel; arrears to be dealt with through mechanisms specified in paragraph 7. - Cargo—restructuring underway expected to reduce staffing by some 3,000 workers this year; a 20 percent stake in CFR Marfa to be offered by IPO or to a strategic investor by end-2011 with a view to full privatization when market conditions permit; appoint legal advisor for partial privatization by mid-July and appoint investment bank for IPO by end-September; hire private management team in CFR Marfa by end-January (as specified in ¶20); subsidiaries to be integrated into mother company by end-September, as agreed in the TMU. - Passenger—three (of four) subsidiaries integrated into CFR Calatori by end-September; operating losses to be reduced by 25 percent by end 2011 through territorial restructuring, reducing staffing by 1000 employees, closure of non-viable routes, reducing number of trains where revenues are low, using standard costs for procurement procedures and reducing public service obligations by some 5 percent; allow tariff adjustments by end-August to improve cost recovery. - Infrastructure—conclude closure of 1000 kilometers of railway lines by end-August and develop plans for competitive tendering of public service obligations and infrastructure maintenance on lines for another 20 percent of the system or close them; all subsidiaries except those specified in the TMU to be integrated into the mother company by end-September; insolvency procedures to continue in the Tipografia subsidiary; Telecomunicatii and GEI Palat subsidiaries to be folded into the Ministry of Transport. - Metropolitan transit: - pass legislation by end-August to establish a new metropolitan transit authority to oversee Metrorex and RATB; - pass law allowing tariff adjustments (beyond inflation-indexing) in line with strategic plan to cover current expenditures through revenues and capital expenditures through subsidies; - Metrorex to diminish maintenance costs by at least 30 percent by end 2011. - Air transport: - appoint legal advisor by end-September to assist with privatization of maximum 20 percent of TAROM via stock exchange or to a strategic investor by mid-July; - appoint investment bank to manage IPO by end-September and conclude partial privatization by end-December; - hire private management team in TAROM by end-January (as specified in ¶20). - Appointment of legal advisors for privatization of CFR Marfa and TAROM is a structural benchmark for mid-July. ### Energy sector reforms and privatizations - Importance of securing efficient energy provision emphasized; underinvestment, dominance of undercapitalized state-owned firms, and incomplete adjustment of regulated prices cited as problems. - Planned actions: - restore ANRE operational and financial autonomy in accordance with EU legislation (third energy package) on timetable in attached TMU; - as a prior action, approve a government ordinance to separate CUG prices between households and non-residential customers and allow ANRE full autonomy to adjust the CUG price for non-residential customers; - adjustments to the full CUG price to be made in 2 steps: one in June/July and one in Q4; - present a roadmap for phasing out regulated prices in electricity and gas by end-September 2011; - define vulnerable consumers by end-2011 according to EU legislation and develop mechanisms to protect them (with Ministries of Finance and Labor); - complete removal of regulated prices for non-households in electricity and gas before end 2013 and complete the process by end-2015; - ensure new bilateral contracts signed by state-owned gas and electricity generators be made transparently and non-discriminately through OPCOM (electricity) and other competitive procedures (gas), and adjust prices in existing contracts to prevailing market rates as quickly as legally permissible; - comply with faster action if EU infringement procedures require it. - Privatization and capital inflows to energy sector: - minority private investors sought via IPOs or sales of stakes to strategic partners in Petrom, Transelectrica, Transgaz, Romgaz: - Petrom: sale of a 10 percent stake is already underway; - Transelectrica: 15 percent stake and a capital increase; - Transgaz: 15 percent stake; - Romgaz: 15 percent stake. - For each case: appoint legal advisor for privatization by mid-July (structural benchmark), appoint investment bank for privatization by end-September, and conclude tenders by end-2011. - Begin process of offering minority stakes in Hidroelectrica and Nuclearelectrica (sale of an existing stake and capital increase) aiming to complete by end-March and end-June, 2012, respectively. - Strategy to form two national champion energy companies blocked by court rulings; alternative strategy being developed. - Move ahead with privatization of energy complexes and Electrica Serv in full compliance with EU competition regulations. - In CNH: form separate legal entities splitting viable and non-viable coal mines by end-December after consultation with EU DG Competition; viable assets to be privatized and nonviable liquidated in line with EU rules. - In Termoelectrica: form separate legal entities for viable and nonviable assets by end-January after consultation with DG Competition; prepare viable assets for privatization by March 2012. - Work on comprehensive solution for problems in district heating companies by end-July. ### Other SOEs and privatizations - Oltchim: - completed assessment; intend to privatize remaining public stake by end-2011; - develop solution for firm’s heavy debts in coming months; - appoint legal advisor for privatization of remaining public participation to a strategic investor by end-June; - appoint investment bank for privatization by end-September; complete tender by end-2011. - Posta Romana: - completed assessment; complete implementation of approved restructuring plan which envisages elimination of losses by 2012 at the latest. ### Labor market, judiciary, and agricultural reforms - Labor Code entered into force on April 30th; aims to improve labor market flexibility by promoting fixed-term and temporary employment, extending probation periods, and increasing flexibility of working hours. - Social Dialogue Code modifying collective bargaining and other labor relations cleared by Constitutional Court and to be promulgated soon. - Social dialogue reform elements: raise representativity thresholds for trade unions and employers’ associations; abolish collective bargaining at national level; eliminate automatic erga-omnes extension at sectoral level. - Commitment that new legislation observes EU directives and core ILO and EU conventions. - Judiciary reforms underway to make it more effective, unify jurisprudence, and fight corruption; successful implementation of new fundamental legal codes (civil, criminal, civil procedure, criminal procedure) is a top government objective; measures to implement these codes to be decided after finalization of impact studies. - Agricultural reforms to include speeding up surveying and registration of agricultural land to improve food security and increase export prospects. ### Program modifications, monitoring, and implementation mechanics - Program to be monitored through regular reviews, prior actions, quantitative performance criteria and indicative targets, and structural benchmarks. - Quantitative targets for end-September 2011 and continuous performance criteria are set out in Table 1 and in the TMU, where an adjustor to the end-June performance criterion on general government balance has been added; prior actions and structural benchmarks in Table 2. - Understandings regarding quantitative performance criteria and structural measures are further specified in the attached Technical Memorandum of Understanding. ### Key quantitative figures and targets (as presented) - Change in net foreign assets (mln euros): 20,026; -50; 119; 250; 500; 500 - Floor on general government overall balance (mln lei): -33,621; -7,289; -5,254; -12,600; -17,500; -23,953 - Stock of central government and social security arrears (bn lei): 0.19; 0.20; 0.13; 0.20; 0.15; 0.10 - IV. Indicative Target — General government current primary spending (excl. EU funds and social assistance, mln lei): 131,938; 32,000; 30,670; 64,000; 95,100; 128,200 - IV. Indicative Target — Operating balance (earnings before interest and tax, net of subsidies) of key SOEs (as defined in TMU (bn. lei)): -6.4; -1.7; -0.7; -2.7; -3.6; -4.0 - Continuous Performance Criterion — Nonaccumulation of external debt arrears: 0; 0; 0; 0; 0; 0 - Inflation consultation — 12-month rate of inflation in consumer prices: - Center point: 8.0; 7.0; 8.0; 6.8; 4.2; 3.7 - Outer band (upper limit): ...; 9.0; ...; 8.8; 6.2; 5.7 - Inner band (upper limit): ...; 8.0; ...; 7.8; 5.2; 4.7 - Inner band (lower limit): ...; 6.0; ...; 5.8; 3.2; 2.7 - Outer band (lower limit): ...; 5.0; ...; 4.8; 2.2; 1.7 *Source: Letter and supporting text to IMF staff from Romanian authorities (excerpts).* ### 9. Stock of arrears of key SOEs (as defined in TMU (bn. lei)) ### 9. Stock of arrears of key SOEs (as defined in TMU (bn. lei)) ### Stock of arrears of key SOEs (as defined in TMU) - 18.1 - 19.5 - 19.2 - 19.5 - 19.0 - 18.0 ### Stock of local government arrears (bn lei) - 0.91 - 0.95 - 0.82 - 0.90 - 0.85 - 0.80 ### Memorandum Item: Revenue of general government, net of EU funds (mln. lei) 4/ - 159,141 - 40,100 - 40,238 - 82,250 - 127,000 - 171,000 *Notes extracted from source:* - 1/ The end-December 2010 figure is a stock. - 2/ Cumulative flows relative to end-December 2010 stock. - 3/ For March 2011 target, an adjuster for WB disbursement of 300 million euros is applied to the target of 250 million euros. - 4/ Cumulative figure during calendar year (e.g. March 2011 figure is cumulative from January 1, 2011). - 5/ The target for March 2011 is adjusted from -6300 to -7289 reflecting higher capital spending (6798) than defined in TMU (5740) and extra revenue. ### Related program targets and status (selected extracts) - Ceiling on general government guarantees issued since end-2008 (face value, bn lei): 15 (March) - Prior actions (selected): - Completion of a stocktaking of arrears and unpaid bills as of end-December 2010 for the entire general government and SOEs (¶19). - Pass the government decision on ANAF restructuring (¶9). - Approval of a government ordinance separating the CUG prices between households and non-residential customers and allowing ANRE full autonomy to adjust the CUG price to non-residential customers (¶22). - Quantitative performance criteria (March 31, 2011): all listed criteria Met (Floor on general government overall balance; Ceiling on general government guarantees; Ceiling on central government and social security domestic arrears; Non-accumulation of external debt arrears; Floor on net foreign assets). - Quantitative indicative targets (March 31, 2011): listed items Met (Ceiling on general government current primary spending; Ceiling on local government domestic arrears; Floor on the operating balance and ceiling on arrears of key loss-making SOEs). - Structural benchmarks (selected): - Preparation of strategic action plans for key SOEs (as specified in TMU) (¶19). — April 30, 2011 — Met - Completion of a stocktaking of arrears and unpaid bills as of end-December 2010 for the entire general government and SOEs — April 30, 2011 — Reset as prior action - Others listed with revised dates and notes in the source. ### Technical Memorandum of Understanding — Exchange rates and definitions (selected) - Exchange rates as of December 31, 2010 (NBR website): - RON 4.2848 = €1 - RON 3.2045 = $1 - RON 3.9400 = ¥100 - RON 4.9673 = ₤1 - General government definition: includes central government, local governments, social security funds (pension, health, and unemployment), road fund company, and administration of the property fund; will be expanded to cover SOEs incorporated into general government accounts under ESA95 upon Eurostat review. ### Net Foreign Assets (NFA) floor (cumulative change from beginning of year, in mln. euros) - End-2010 stock (actual) NFA: 20,026 - 2011 cumulative change targets / PC / indicative: - March PC: 119 - March PC (note): PC met with an adjustment for the World Bank disbursement of €300 million. - June PC: 250 - September indicative: 500 - December indicative: 500 - Memorandum Item: Gross Foreign Assets - End-2010 stock: 32,432 - 2011 flows: 996, 1000, 1000, 1000 (March, June, September, December) ### Inflation consultation bands (12-month CPI, year-on-year) - Outer band (upper limit): 8.8, 6.2, 5.7 (quarters as in table) - Inner band (upper limit): 7.8, 5.2, 4.7 - Actual / Center point: 8.0, 8.0, 6.8, 4.2, 3.7 - Inner band (lower limit): 5.8, 3.2, 2.7 - Outer band (lower limit): 4.8, 2.2, 1.7 ### Cumulative floor on general government balance (In millions of lei) - End-December 2010 (actual): -33,621 - End-March 2011 (actual): -5,254 - End-June 2011 (performance criterion): -12,600 - End-September 2011 (performance criterion): -17,500 - End-December 2011 (indicative): -23,953 ### External program disbursements — Baseline projections (in mln. euros) - Cumulative flows from end of previous year: - March: 1,200 - June: 1,650 - September: 2,050 - December: 2,050 ### Ceiling on new general government guarantees issued from end-2008 (In billions of lei) - End-December 2010 (actual): 7.6 - End-March 2011 (actual): 8.1 - End-June 2011 (performance criterion): 14 - End-September 2011 (performance criterion): 14 - End-December 2011 (indicative): 14 - Note: ceiling set at RON 14 billion but may be adjusted upward by up to RON 9.6 billion for guarantees for financing the Nabucco project. ### Stock of central government and social security arrears (In billions of lei) - End-December 2010 (stock, actual): 0.19 - End-March 2011 (stock, preliminary): 0.15 - End-June 2011 (performance criterion): 0.20 - End-September 2011 (performance criterion): 0.15 - End-December 2011 (indicative): 0.10 ### Continuous performance criterion on non-accumulation of external payments arrears - The general government will not accumulate external payment arrears during the program period. - Definition: an external payment arrear is a payment by the general government not made within seven days of falling due. *Italicized source: _cr11158 - 9. Stock of arrears of key SOEs (as defined in TMU (bn. lei))_* ### 19. The indicative target on current primary expenditure of the general government is ### 19. The indicative target on current primary expenditure of the general government is ### Definition and scope - The indicative target on current primary expenditure of the general government is defined as spending on personnel, goods and services excluding EU funds (specified under external grant category), subsidies, transfers to public entities, pensions (social security budget in social assistance category), state aid and other spending in other transfers category, Reserve Fund, and other expenditure as classified in the monthly reporting tables. - The current spending target will be adjusted for the extra spending due to swap arrangement between local governments and public enterprises by an amount spent in the respective quarter. - Footnote: The swap arrangement would involve mutually cancelling overdue tax obligations of public enterprises with arrears owed to those enterprises by the general government (local administration). ### Cumulative change in general government current primary expenditures (In millions of lei) - End-December 2010 (actual): 131,938 - End-March 2011 (actual): 30,670 - End-June 2011 (indicative): 64,000 - End-September 2011 (indicative): 95,100 - End-December 2011 (indicative): 128,200 - Note: Cumulative figure during calendar year (e.g., March 2011 figure is cumulative from January 1, 2011). --- ### H. Indicative Target on Local Government Arrears - Objective: No accumulation of new arrears and reduction of arrears during the program period. In case of need, the government will take corrective measures to prevent the accumulation of new spending arrears. - Definition: For the purpose of the program, arrears mean accounts payable past due date by 90 days (in line with ESA95 definitions for expenditures). Stock in local government arrears (In billions of lei) - End-December 2010 (stock, actual): 0.91 - End-March 2011 (stock, preliminary): 0.82 - End-June 2011 (indicative): 0.90 - End-September 2011 (indicative): 0.85 - End-December 2011 (indicative): 0.80 --- ### I. Monitoring of Public Enterprises - Definition: Public enterprises are defined as all companies, research institutes and regii autonome with a public capital share of 50 percent or more, held by local governments or the central government, or as subsidiaries of public entities with a cumulative public share of 50 percent or more. - A quarterly indicative target for 2011 is set on the aggregate operating balance (earnings before interest and tax) net of subsidies, accumulated per calendar year, of the following public enterprises: C.N. Căi Ferate CFR S.A., C.N. de Autostrãzi de Drumuri Naționale din România S.A., C.N. a Huilei S.A., C.N. Poşta Românã S.A., S.C. Complexul Energetic Turceni S.A., S.C. Filiala de Intreținere și Servicii Energetice "Electrica Serv" - S.A., S.C. Metrorex S.A., S.N. de Transport Feroviar de Marfă ”CFR Marfă” S.A., S.N. Transport Feroviar de Călători ”CFR Călători” S.A., C.N. Tarom S.A., S.C. Electrocentrale București S.A., S.C. Electrica Furnizare Transilvania Nord S.A., S.C. Oltchim S.A., S.C. Termoelectrica S.A., SNa Lignitului Oltenia S.A., S.C. Electrificare CFR S.A., S. C. Intervenții Feroviare S.A., S. C. Telecomunicații C.F.R. S.A. - The data shall be reported with operating results by firm. Floor on cumulative operating balance (In billions of lei) - End-December 2010 (actual): -6.4 - End-March 2011 (preliminary): -0.7 - End-June 2011 (indicative): -2.7 - End-September 2011 (indicative): -3.6 - End-December 2011 (indicative): -4.0 - Note: Cumulative figure during calendar year (e.g., March 2011 figure is cumulative from January 1, 2011). Ceiling on stock of arrears (In billions of lei) - End-December 2010 (actual): 18.1 - End-March 2011 (preliminary): 19.2 - End-June 2011 (indicative): 19.5 - End-September 2011 (indicative): 19.0 - End-December 2011 (indicative): 18.0 - The quarterly indicative targets for the aggregate operating balance and stock of arrears for the listed public enterprises will be revised at the time of the second review in accordance with the action plans to reduce arrears and audited end-2010 data. --- ### J. Steps to be undertaken to ensure the energy regulator’s (ANRE) operational and financial autonomy - Objective: Restore ANRE operational and financial autonomy in accordance with EU legislation (third energy package) (LOI, ¶22). - Timeline and steps: - a. Submission of a draft to DG Energy for approval by June 1, 2011; - b. Government approval of a revised version in accordance with DG Energy comments and submission to Parliament, within 2 weeks of receiving the response from DG Energy; - c. Parliamentary approval is expected within the next four months. --- ### K. Reporting Requirements - Performance under the program will be monitored from data supplied to the IMF by the NBR and the MOPF. The authorities will transmit promptly to IMF staff any data revisions as well as other information necessary to monitor the arrangement with the IMF. Selected items and periodicities (as reported) - Preliminary monthly data on general government accounts, including public enterprises as defined by ESA95: Monthly, on the 25th day of the following month. - Quarterly final data on general government accounts, including public enterprises as defined by ESA95: Quarterly cash data, on the 35th day past the test date; Quarterly accrual data, on the 55th day past test date. - The budget deficit of the general government using ESA95 definition: Quarterly, with a lag of three months. - Preliminary data on below-the-line financing for the general government: Monthly, with a lag of no more than 35 days past the test date. - Final quarterly data on below-the-line financing for the general government: Quarterly, no later than 45 days past the test date. - Total accounts payable and arrears of the general government, including local governments: Preliminary monthly, within the next month. Quarterly, within 55 days. - Stock of the central government external arrears: Daily, with a lag of not more than seven days. - Public debt and new guarantees issued by the general government: Monthly, within one month. - Preliminary monthly data on general government primary spending, net of EU disbursements: Preliminary monthly data will be reported to IMF staff within 25 days. - Final quarterly data on general government primary spending, net of EU disbursements: Quarterly, within 35 days from the test date. - The operating balance, profits, stock of arrears, and personnel expenditures of key public enterprises (as defined in ¶22 and 23) by total expenditures: Quarterly, within 30 days. - Data on EU project grants (reimbursements and advances), capital expenditures and subsidies covered by EU advances or eligible for EU reimbursement on EU supported projects specifically agreed with the EU: Monthly, within three weeks of the end of each month. - The balance of the privatization receipts registered in the account of the State Treasury, details on any claims on these receipts and projected net outflows: Monthly, within two weeks of the end of each month. To be provided by the National Bank of Romania (selected) - NFA data, by components, in both program and actual exchange rates: Weekly, each Monday succeeding the reporting week and with a 3 working day lag in the case of end-quarter data. - Monetary survey data in the format agreed with IMF staff: Monthly, within 30 days of the end of the month. - The schedule of contractual external payments of the banking sector falling due in the next four quarters, interest and amortization (for medium and long-term loans): Monthly, 45 days after the end of each month. - The schedule of contractual external payments of the corporate sector falling due in the next four quarters interest and amortization (for medium and long-term loans): Monthly, 45 days after the end of each month. - The stock of short-term external debt of banks and corporate: Monthly, 45 days after the end of each month. - Balance of payments in the IMF format currently used to report: Monthly, 45 days after the end of each month. - Exposure (deposits, loans, subordinated loans) of (i) foreign parent banks to their subsidiaries in Romania; (ii) IFI and (iii) other creditors to banks in Romania (by national and foreign currency): Monthly, 20 days after the end of each month. --- ### ANNEX: Measures to Improve Performance of SOEs under Monitoring (selected measures and deadlines) C.N. de Autostrãzi de Drumuri Naționale din România S.A. - Reduce personnel by at least 600 positions (compared with end-2010) by mid-July. - Pay arrears due to investment projects (currently RON 737 million) by end-August. - Approve remaining standard costs for building and maintaining roads by end-September, to be required on all new contracts. - Create the single road control authority by end-September. - Increase revenues by extending the electronic toll control system in 2011. - Reduce costs through renegotiation or termination of non-performing contracts. S.N. de Transport Feroviar de Marfă ”CFR Marfă” S.A. - Finalize multi-annual plans for public procurement and investments by end-June. - Appoint legal advisor for privatization of 20 percent stake via IPO or to a strategic investor by mid-July. - Reduce personnel by another 3000 positions compared with end-2010 by end-July. - Reorganize and reduce regional centers from 8 to 4 by end-July. - Approve remaining standard costs for maintaining rolling stock by end-June. - Appoint investment bank for privatization by end-September. - Integrate all subsidiaries by end-September, with specified exceptions. - Publish prospectus for privatization by end-October. - Conclude privatization of 20 percent stake by end-2011. - Appoint private management by end-January 2012. - Continuous reinforcement of efforts to collect outstanding invoices, including by giving notice to contracts and taking legal measures against companies with substantial arrears. S.N. Transport Feroviar de Călători ”CFR Călători” S.A. - Reduce personnel by at least 1000 positions (compared with end-2010) by end-July. - Public service obligation will be reduced from 59 million train/km to 54 million train/km by end-July. - Finalize multi-annual plans for public procurement and investments by end-June. - Approve remaining standard costs for maintaining rolling stock by end-June. - Amendment of laws 36/2001 and 205/2002 to allow for tariff adjustments beyond inflation-indexing differentiated by train category by end-August. - Integration of 3 (of 4) subsidiaries by end-September. C.N. Căi Ferate CFR S.A. - Reduce personnel by at least 1500 positions (compared with end-2010) by end-July. - Approve remaining standard costs for building and maintaining rail infrastructure by end-June. - Conclude the closing of 1000 kilometers of railway lines by end-August. - Continue insolvency procedure for Tipografia subsidiary and specified integrations by end-September. - Publication of tenders for public service obligations and infrastructure maintenance for sections proposed to be moved into non-interoperable category and their closure by end-October if tenders fail. S. C. Interventii Feroviare S.A. - Reduce personnel by at least 30 positions (compared with end-2010) by end-August. S.C. Electrificare CFR S.A. - Reduce personnel by at least 110 positions (compared with end-2010) by end-August. S. C. Telecomunicatii C.F.R. S.A. - Reduce personnel by at least 100 positions (compared with end-2010) by end-August. S.C. Metrorex S.A. - Amendment of laws 36/2001 and 205/2002 to allow for tariff adjustments beyond inflation-indexing by end-August. - Passage of legislation to establish a new metropolitan transit authority by end-August. - Reduction of maintenance costs by 30 percent by end-2011. C.N. Tarom S.A. - Elimination of all arrears by end-June. - Appointment of legal advisor for privatization of a maximum 20 percent stake via IPO or to strategic investor by mid-July, and an investment bank for privatization by end-September, with a view of concluding privatization by end-2011. - Appointment of private management by end-January 2012. - Continuous efforts to reduce costs and increase revenues through various measures. C.N. Poşta Românã S.A. - Reduction of postal subunits by approximately 900 until end-July. - Additional reduction of at least 70 administrative positions by end-July. - Continuous reinforcement of efforts to collect outstanding invoices. - Repayment of all arrears (depending on court decision, where applicable). - Continue implementation of actions included in the Government Decision 572/2010 and aim to turn the company into a profit-making one by end 2012. S.C. Oltchim S.A. - Appointment of legal advisor for privatization of remaining public stake by end-June and appointment of investment bank for privatization by end-September with the aim of concluding privatization by end-2011. S.C. Termoelectrica S.A. - Reduce personnel by at least 300 positions (compared with end-2010) by end-June. - Continuation of dismantling of production capacity (compared with end-2010) of 50 MW by end-June and additional 100MW by end-2011. - Separation of viable and nonviable assets in legal entities by end-December. - Preparation for privatization of viable parts by end-March 2012. - Continuous reinforcement of efforts for collecting outstanding invoices, including legal measures where appropriate. S.C. Electrocentrale Bucuresti S.A. - Negotiation on payment of outstanding invoices, outcome to be reported end-July. - Start of restructuring measures to prepare for privatization. S.C. Filiala de Intretinere si Servicii Energetice "Electrica Serv" - S.A. - Negotiate possibilities to pay arrears with clients and with mother company by end-June. - Assessment of possibilities to separate nonviable parts (to be liquidated) by mid-July. - Appointment of legal advisor for majority privatization via IPO or to strategic investor and appointment of investment bank for privatization. - Continue restructuring according to Government’s Decision No. 760/2010. S.C. Electrica Furnizare Transilvania Nord S.A. - Preparation for privatization. S.C. Complexul Energetic Turceni S.A. - Reduce personnel by 200 posts (compared with end-2010) by end-September. - Review possibilities of renegotiating credit with JBIC, provided that economic efficiency is increased. - Undertake steps towards majority privatization by IPO (appointment of legal advisor, investment bank, and publication of prospectus). C.N. a Huilei S.A - Separation of viable and nonviable assets in legal entities by end-December. - Preparation for privatization of viable parts by end-March 2012. - Liquidation of nonviable assets in line with EU rules. SNa Lignitului Oltenia S.A. - Negotiation with customers, including SOEs, to pay arrears to SNLO, allowing SNLO to reduce own arrears, and results are to be presented mid-July. *International Monetary Fund — ROMANIA: First Review Under the Stand-By Arrangement, and Request for Modification of Performance Criteria—Supplementary Information, June 23, 2011.* ### 8.4 percent (yoy) on the back of strong increases in the prices of food, fuel, tobacco, and ### _cr11158 - 8.4 percent (yoy) on the back of strong increases in the prices of food, fuel, tobacco, and ### Program implementation and market developments - IMF completed the first review of Romania’s performance under a 24-month precautionary Stand-By Arrangement (SBA); review completion enables immediate disbursement of SDR 430 million (about €481 million or about US$683 million). - The SBA was approved on March 25, 2011 in the amount of SDR 3,090.6 million (about €3.5 billion or about US$4.9 billion) and came into effect on March 31, 2011. - The authorities decided to treat the arrangement as precautionary and informed the IMF that they do not intend to draw under the arrangement. - On June 10, the government launched a three-year “euro medium term note” program and issued a five-year fixed-rate Eurobond for €1½ billion which was oversubscribed nearly two times; another issue is planned in the second half of the year. - Since June 1, the leu depreciated by about 2 percent and CDS spreads jumped by around 30 basis points amid concerns over Greek banks’ presence in Romania and potential parent-bank fund withdrawals. - All end-March 2011 quantitative performance criteria, indicative targets, and prior actions were observed (table of prior actions, quantitative performance criteria, indicative targets, and structural benchmarks all marked "Met" where listed). ### Recent economic developments - First quarter GDP growth: 0.7 percent (qoq) and 1.7 percent (yoy). - Industrial output growth: 10 percent (Q1). - Exports growth: 24 percent; imports growth: 16 percent. - GDP growth projections: around 1.5 percent in 2011 and 3.7-4 percent in 2012. - Inflation: 0.2 percent in May and accelerated to 8.4 percent yoy; expected peak at 8.5 percent in mid-year and to decline to slightly above 5 percent by end-2011. - Current account deficit: 4.1 percent of GDP in 2010; projected to stabilize below 5 percent of GDP in 2011 and 2012. - The authorities succeeded in issuing the first five year euro-denominated bond in the euro Medium-Term Notes program and raised 1.5 billion euro at a yield of 5.3 percent. - Financial market stress has eased; sovereign CDS narrowed and remained well below several other EU member countries, including euro-area periphery countries. ### Fiscal policy: status, targets, and measures - 2011 cash fiscal deficit target: 4.4 percent of GDP; May fiscal deficit target met. - 2012 deficit objective: bring the fiscal deficit to below 3 percent of GDP in ESA terms; achieving 3 percent of GDP in 2012 will require additional efforts. - Expenditure-side measures: - Keep the wage bill within the agreed limit. - Continue rationalizing public employment (public employment declined by another 15,000 to 1.25 million in the first quarter of 2011). - Improve and prioritize capital spending to increase EU funds absorption. - Health sector reforms: reform government-insured benefits package; reduce excess public sector hospital beds to reach the EU average by 2013; introduce new health cards for all participants; measures to reduce pharmaceutical costs; introduce a new electronic prescription module in 2012. - Broaden the base for health contributions; introduce modest copayments for medical services with legislation to be approved by the Chamber of Deputies. - Revenue-side measures: - VAT rate to remain at 24 percent. - Improve tax administration and fight tax evasion. - Recently approved legislation relating to high net wealth individuals. - Restructure tax administration to increase efficiency and collection. - Institute simplified taxation for smaller taxpayers and request a shift in the VAT mandatory threshold from the EU Council of Ministers to EUR 50,000. - Accelerated EU funds absorption: - Strengthen administrative capacity of managing units and public procurement efficiency with standard bidding documents. - Move EU structural funds coordination unit from the Finance Ministry to the Prime Minister’s office and strengthen authority and staffing. - Modernize and consolidate legislative regulatory framework for public investment, including PPP law conformity with EU procurement directives. ### Monetary and financial sector policies - Monetary policy stance: authorities announced a change towards a tightening bias; early policy action could be needed to contain inflationary expectations and second-round effects. - Inflation outlook: expected to peak at 8.5 percent in mid-year and decline to slightly above 5 percent by end-2011; further expected hikes in administered prices make meeting the 2011 inflation target difficult; authorities to take action as needed to ensure the 2012 inflation target is met. - Central Bank actions: improve liquidity management; remain alert to potential risks from capital inflows as the economy recovers. - Banking sector indicators and measures: - Banking sector returned to profitability in Q1; average solvency ratio of 14.7 percent; all banks posting solvency ratio above 11 percent. - Aggregate exposure of parent banks of the nine largest foreign-owned banks at end-March 2011 stood at 97 percent of the level when the European Bank Coordination Initiative started. - Subsidiaries of euro zone periphery banks (including Greek banks) are better capitalized than the system average and have strong liquidity positions; no indications of adverse deposit movements at the time. - Central Bank developing new regulations to discourage un-hedged consumer borrowing in foreign currency. - Authorities strengthened the financial safety net: develop operating procedures and contingency plans for new resolution tools; ensure Deposit Guarantee Fund (DGF) has ready access to liquidity; prepare joint procedures for deploying DGF funds in a bank resolution. ### Structural reforms and SOE restructuring - Deep-rooted reform of state-owned enterprises (SOEs), especially in energy and transport, is a program priority. - Action plans finalized for 18 firms; action plans for remaining state firms advancing. - All SOEs subordinated to local governments to submit quarterly key financial and operational indicators to the Ministry of Public Finance. - SOE governance improvements: - Require regular independent external audits and quarterly financial data publication. - Move financial control of SOEs from line ministries to the Ministry of Public Finance. - For largest firms, key management positions to be filled after open international search by internationally recognized HR firms; management search to begin by end-August and private management teams selected by end of year. - Transport sector reforms: - Railway and road companies to be restructured per plans for better cost recovery, competitive tendering, and decreased losses and arrears. - Railway Cargo Company: staffing reduced by some 3,000 workers; 20 percent stake to be offered by IPO or to a strategic investor. - Railway Passenger Company: operating losses to be reduced by 25 percent by end-2011 through territorial restructuring, reducing staffing by 1,000 employees and reducing low-revenue trains. - Legislation to establish a new metropolitan transit authority for Bucharest metro and above-ground public transport; further tariff adjustments planned. - Air transport: appoint legal advisor to assist privatization of 20 percent of TAROM via stock exchange or strategic investor. - Energy sector reforms: - Restore energy regulator’s operational and financial autonomy in line with EU legislation. - Approve legislation to separate prices between households and non-residential customers to allow regulator full autonomy to adjust non-residential prices. - Regulator to start adjusting prices for gas and electricity in June/July for non-residential customers and later in 2012 for households; develop mechanism to protect the most vulnerable consumers. - Bring minority and/or strategic private investors into key energy firms, including Petrom, Transelectrica, Romgaz. - Begin offering minority stakes in the Hydropower Company and Nuclear power plant. - Coal companies to be downsized by forming separate legal entities, splitting viable and non-viable assets; viable assets privatized and non-viable assets liquidated in line with EU rules. ### Structural benchmarks, prior actions, and targets (selected) - Prior actions completed: - Completion of a stock-taking of arrears and unpaid bills as of end-December 2010 for the entire general government and SOEs. - Passage of government decision on ANAF restructuring. - Approval of government ordinance separating CUG prices between households and non-residential customers and allowing ANRE full autonomy to adjust the CUG price to non-residential customers. - Quantitative performance criteria as of March 31, 2011: all listed items (floors/ceilings on general government overall balance, guarantees, arrears, non-accumulation of external debt arrears, floor on net foreign assets) marked "Met". - Indicative targets and inflation consultation band as of March 31, 2011: all listed items marked "Met". - Structural benchmarks with dates and resets listed in the source; new structural benchmarks added (e.g., SOE reforms, legislation to improve governance of SOEs). *International Monetary Fund. Press Release No. 11/257; IMF Completes First Review Under Precautionary Stand-By Arrangement with Romania and Approves €481 Million Disbursement; June 27, 2011.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11158.pdf_