Statement on Romania following IMF mission

A European Commission team participated in a mission carried out by the IMF in Romania in the context of the international financial assistance granted to the country.

The Commission delegation, headed by Head of Unit Fabienne Ilzkovitz, concluded that the implementation by Romania of its economic programme has been satisfactory. However, given the worsening of the economic situation during the first half of the year, the government will need to take further measures, including structural reforms, to contain the increase in the budget deficit that is now likely to be higher than previously expected. Ilzkovitz is Head of unit for a group of countries including Romania in the Economic and Financial Affairs Directorate General. The mission took place between 29 July and 10 August. 

Real GDP contracted by 6.2% year on year in the first quarter, more than expected when the Romanian economic adjustment programme was agreed in June, as a result of worse-than-expected domestic demand and external environment. The authorities' new growth projections for this year have been downgraded to around -8/-8½% from -4% previously with only a modest recovery expected in 2010, as weak household financial conditions and rising unemployment will keep domestic demand low.

Reflecting lower growth, public revenues in 2009 are also lower than expected by about 3.5% of GDP. The government agrees to additional spending cuts of about 0.8% of GDP in 2009 in order to contain the deterioration in the budgetary situation. Structural reforms will also be stepped-up to continue the budgetary consolidation beyond 2009. This will include further measures to restructure public sector employment and to strengthen fiscal discipline in local governments, decentralized entities and state-owned enterprises. This is on top of the implementation of a Fiscal Responsibility Law, currently under way, and reforms of the public wage and pension systems.

The Commission in October will carry out its own assessment ahead of the payment of a second instalment of the €5 billion medium-term financial assistance loan to the Romanian balance of payments agreed by the EU on a Commission proposal.  In July it paid a first instalment of €1.5 billion.  The current assessment at staff level by the IMF and the Commission together with the Romanian government puts the revised deficit target at 7.3% of GDP in 2009, compared to 4.6% agreed at the start of the programme (respectively 7.8% and 5.1% of GDP in terms of European System of Accounts - ESA95 - rules).

For 2010, further measures have been agreed to bring the deficit to below 6% of GDP in cash terms (corresponding to 6.5% in ESA 95 terms) mainly aiming at  reducing the size of the public wage bill and containing spending on goods and services , while giving priority to investment projects co-financed with EU funds.

Today, the Commission and the IMF have also welcomed the signing of formal letters by the parent companies of the nine largest banks in Romania committing their group's overall exposure to the country.