A mission from the International Monetary Fund (IMF), joined by representatives from the European Commission and the World Bank, visited Bucharest from July 26 to August 4. Mr. Jeffrey Franks, IMF Mission Chief for Romania, made the following statement at the conclusion of the visit:
"We have reached agreement at staff level on the fifth review of the Stand-By Arrangement. Subject to approval by IMF Management and the Executive Board, the sixth disbursement (SDR 769 million or around €0.9 billion) would become available. The Board meeting is tentatively scheduled for late September." "Preliminary data for the second quarter suggest that the performance criteria were observed, with the exception of the ceiling on government arrears and the indicative target of current primary spending." "Weak domestic demand and economic uncertainties in the region continue to weigh on economic growth, though signs of recovery are being observed in some sectors. We now expect Gross Domestic Product (GDP) to contract by 2 percent in 2010, but growth should turn positive later in the year, leading to an increase of GDP of about 1½ percent in 2011 and even faster growth in 2012 and beyond. Headline inflation (CPI) will increase temporarily to 7-8 percent due to the adjustment in the Value Added Tax (VAT). This increase is not monetary in nature, and as a result we expect inflation to fall back into the National Bank of Romania's target range during 2011." "Romania's fiscal imbalances are being addressed by the appropriately ambitious measures taken in June, which included increasing the VAT rate to 24 percent, cutting public wages by 25 percent, and cuts in certain transfer payments. These measures-together with improved revenue collection and continued expenditure constraint-should be sufficient to keep the budget deficit below 6.8 percent of GDP in 2010. If the measures are carried through into the future, Romania should also be well-placed for reaching its deficit objectives in 2011 and 2012 without the need for a large additional fiscal effort." "The key to future sustained growth in Romania is to pursue structural reforms forcefully to ensure a more efficient public sector and to boost investment and productivity. The pension reform and implementing legislation to the unified public pay law, both to be adopted by Parliament in September, are critical. Labor market reforms envisaged by end-2010, as well as a broad political commitment to provide a stable policy environment and to tackle corruption will be crucial for the Romanian economy to fully reach its potential. Finally, the poor absorption of EU funds, which could have alleviated the recession, is of great concern. We urge the authorities to take forceful actions to reverse this situation." "The Romanian banking system remains well capitalized. The capital adequacy ratio at end-June was 14.3 percent and all banks had a ratio exceeding 10 percent compared to the mandatory ratio of 8 percent. Obviously, the recession adversely affects the level of non-performing loans but provisions are increasing accordingly to cushion the impact." Source: www.fmi.ro.
IMF Completes Fourth Review Under Stand-By Arrangement with Romania and Approves US$1.146 Billion Disbursement
Press Release No. 10/280, July 2, 2010
The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Romania’s economic performance under a program supported by a 24-month Stand-By Arrangement (SBA). The completion of the review enables the immediate disbursement of SDR 768 million (about €913.2 million or about US$1.1146 billion), bringing total disbursements under the program to SDR 9.031 billion (about €10,738.8 million or about US$13.475 billion). In completing the review the Executive Board also approved Romania’s request for a waiver of applicability of end-June 2010 performance criteria. More information is available athttp://www.imf.org/external/np/sec/pr/2010/pr10280.htm.
Representatives of international lenders on Romania's economic outlooks
Agerpres, Romanian Economic Highlights, May 17.
IMF’s Jeffrey Franks: Flat or negative growth this year
Romania will have flat or negative growth in 2010, head of the IMF mission to Romania Jeffrey Franks told a press conference concluding the review mission in Bucharest. Franks said that Romania will have a flat or even negative growth in 2010, and without employing corrective measures, the public deficit might reach 9.1 percent and would become unsustainable. He also added that a 6.8 percent of GDP fiscal deficit target was agreed upon. Franks underlined that the authorities must speed up the actions of preventing fiscal evasion, this being a source of increasing the budget collections. He also added that they agreed upon a series of structural reforms, which would lead to steady fiscal savings. Jeffrey Franks pointed out that those structural measures should make possible a deficit of 4.4 percent of the GDP, established as a 2011 target by the government.
Fabienne Ilzkovitz (EC): Flat economic growth as of mid-year
Romania's economy has been seriously affected by the world crisis and lately the economic development was weaker than we have expected, especially in the first quarter of 2010, on the backdrop of a weak demand and the developments worldwide, representative of the European Commission Fabienne Ilzkovitz stated on May 10. "We expect, starting mid-year, a flat economic growth in Romania," she said. In her opinion, there are some improvements following the implementation of the agreement with the International Monetary Fund (IMF). Inflation is under control and stabilized and conditions on the financial markets have improved, Ilzkovitz mentioned. "There is a positive result as regards the implemented economic measures. Progress was made in the fiscal regulation field. Progress was also made in the public administration field, where efficiency was improved - this being one of the biggest challenges the authorities in Bucharest are facing," said the EC representative. According to her, the situation is less good in the field of fiscal policies, because some added measures are needed for the public sector employees on the backdrop of the economic situation which resulted in lower tax collection and weaker fiscal revenues. "Romania needs a fresh fiscal reform," concluded Fabienne Ilzkovitz.
Joint IMF, EU and WB mission in Bucharest over April 27 – May 7
Agerpres, Romanian Economic Highlights, May 3. A joint mission of the International Monetary Fund (IMF), European Union (EU) and World Bank (WB) arrived in Bucharest on April 27, and is to stay until May 7, having scheduled in this period meetings with government officials, from the Ministry of Public Finance, the Ministry of Economy, the Ministry of Transport and the Ministry of Labor, Family and Social Protection, as well as the National Bank. "The IMF mission headed by Jeffrey Franks is not only the fourth mission tasked to assess the way Romania observed its Stand-By Agreement requirements, but it is also aimed at finalizing consultations in conformity with Article IV of the IMF Statute, which will result in discussions on particular medium-term policies," IMF resident representative in Bulgaria and Romania Tonny Lybek told Agerpres. The IMF mission is to prepare the fourth report on Romania's economic programme, a document that will be discussed by the Fund's Board in the second part of June. If the report passes, Romania will be transferred the fifth tranche worth 768 million DST (0.85 billion euros) from the IMF loan. Tonny Lybek said that the final meeting of this mission with a double goal, of assessment and consultation, in conformity with Article IV of IMF Statute, is set on May 7, and the EU and WB colleagues that are concomitantly present in Bucharest will too take part in several meetings. "We will attempt, as we always do, to discuss with representatives of trade unions and business people associations, as well as with commercial banks’ management," Lybek added. As regards the consultations in conformity with Article IV, they take place annually with all the member states, irrespective if they have or not a certain ongoing programme with the Fund. "Consultations can be programmed at longer or shorter intervals, but they are focused on some economic policy subjects to be discussed with the respective member state authorities, mainly on medium-term, in contrast with the usual assessment missions focused mainly on performance within the programme convened with the Fund," explained Tonny Lybek. According to him, the budget deficit will be one of the topics, but "it must be clear that this is not an IMF request, but a conditionality of Romania's economic programme." "We must approach fiscal issues because Romania had some fiscal imbalances even prior to the crisis, when the deficit was already well above the three-percent cap established by the EU. Therefore, we must examine these deficits," said the chief of IMF office in Bucharest. However, he pointed out that "Romania took some measures in connection with these deficits, to be approached during the talks with the Romanian authorities." Romania concluded a Stand-By Agreement with IMF on May 4, 2009 that provides that the loan worth 12.9 billion euros is disbursed in eight tranches over a 24-month period. Concurrently, Romania secured a five-billion euro loan from the European Commission. As well, the World Bank is granting Romania three loans within its Programme for Development Policies, worth a total of one billion euros. Other international finance providers also give Romania one billion euros, the total value of the assistance package being 20 billion euros. So far, Romania received approximately 9.3 billion euros from the IMF, 2.5 billion euros from the EU and 330 million euros from the WB.
BCR raises EUR 10 ml in EBRD loan to promote sustainable energy in Romania
The European Bank for Reconstruction and Development (EBRD) disbursed Banca Comerciala Romana (BCR) a loan worth 10 million euros intended to support private companies seeking to improve their energy efficiency. According to a press release, the EBRD loan complements a similar credit line of 20 million euros granted in 2008 and is part of the EU/EBRD Energy Efficiency Financing Program. It will be used for handing out long-term loans of up to 2.5 million euros each to Romanian enterprises ready to invest in the improvement of energy efficiency. Of the non-reimbursable contributions made available by the European Union (EU) upon completion of the works, the companies investing in sustainable energy projects can receive through EBRD an incentive of up to 15 percent of the total investment. With support from the original EBRD loan, BCR funded 14 energy efficiency projects that enabled its customers to cut back on their energy bills, reduce emissions by up to 60 percent a year and improve productivity overall. Source: Agerpres.
EBRD Investments in Romania to exceed EUR 1 billion
The European Bank for Reconstruction and Development (EBRD) invested last year over 70% of the financing worth EUR 1 billion agreed upon with Romania for 2009 and 2010, under the agreement sealed with the IMF, EU and other international financial institutions and predicts it will probably exceed the ceiling this year. “We invested EUR 721 million last year, mostly in the foreign investors present in Romania, but also in local companies (…). At present, we met over 70% of the commitment assumed under the agreement sealed by the local authorities with the IMF and EU. We will invest the remainder, if not more, this year. We will continue to invest heavily in 2010, if there is demand,” EBRD Director for Romania Claudia Pendred said, quoted by the Financiarul daily. She said “it is highly probable” that the investment ceiling of EUR 1 billion is exceeded. Pendred explained 85% of the investments made by EBRD in Romania last year targeted the private sector. EBRD extended a 100-million euro loan to BCR last year and invested EUR 430 million in three projects on the energy sector, two loans for Petrom and one 80-million euro for the Turceni Energy Complex respectively. At the same time, the bank invested EUR 20 million in the expansion of the urban transport network in Arad and Brasov. EBRD investments in Romania are put at EUR 4.4 billion so far. Source: Agerpres.
Romania counting among top beneficiaries of EIB financing programs
According to the data supplied by the European Investment Bank (EIB), Romania is among the countries accessing the most EIB financing programs. The vice-coordinator of the European Parliament (EP) Committee on Regional Development, Democrat Liberal MEP Iosif Manutla cited EIB President Philipe Maystadt as saying, during a talk, that projects worth over EUR 205 billion that EIB had funded in 2009, were contracted for the convergence policy to be enacted in the regions of the EU states whose economic situation is under recovery, and Spain and Poland are among the top beneficiaries of such programs, while the largest investments per inhabitant were made in Estonia. Romania, with major projects started mainly in fields like water supply and sewerage system, along with the Czech Republic and Poland rank among the first EU countries having accessed the most JASPERS programs of technical assistance, in the framework of the partnership reached between the EU Commission and the EIB,” Maystadt stressed. Source: Agerpres.
EU Commission disburses Romania EUR 1 billion in balance of payments support
The European Commission on March 11 disbursed EUR 1 billion to Romania, the second installment of a EUR 5 billion loan, which was agreed in May 2009 as part of a multilateral financial assistance package, the EU executive announced in a press release. The disbursement to Romania follows a positive assessment by the Commission of the implementation by the Romanian authorities of the conditions agreed in the Memorandum of Understanding. "I am happy to report that Romania has complied with the policy conditions for the second EU disbursement. The financial assistance by the EU, the IMF and other international financial institutions has helped Romania overcome the worst of the economic and financial crisis," said Economic and Monetary Affairs Commissioner Olli Rehn. "Progress made towards fiscal consolidation needs to be accompanied by structural policy reforms, including the adoption and implementation of the fiscal responsibility law and the revised pension legislation," he added. The EU now expects Romania to implement the reforms necessary to fulfil the conditions for the disbursement of future installments. These conditions include the adoption and implementation of the fiscal responsibility act, the unified pension law and the follow up legislation to the unified wage law adopted in October 2009. All these actions are necessary to enhance medium term prospects for job creation and growth, allowing the resolution of the imbalances that have worsened the effects of the crisis and permitting the Romanian economy to catch up with the European mainstream, the release said. Source: Agerpres.
IMF okays disbursement to Romania of tranches three and four, in value of EUR 2.3 bln
The Executive Board of the International Monetary Fund (IMF) on February 19 completed the second and third reviews of Romania’s economic performance under a program supported by a 24-month Stand-By Arrangement (SBA) approving the implicit immediate disbursement of tranches three and four, worth an aggregate of EUR 2.3 bilion, of the financial package, reads a release on the IMF website. In completing the reviews the Executive Board also approved Romania’s request for a waiver of non-observance of the end-December 2009 performance criterion pertaining to the ceiling on the accumulation of general government domestic arrears, reads the document.
*John Lipsky: Continued supervisory vigilance necessary to protect Romanian banking system against spillover effects
Following the Executive Board's discussion on Romania, John Lipsky, IMF First Deputy Managing Director and Acting Chair, said, as cited on the IMF official website: “Policy implementation has been strong despite a difficult political and economic environment. Nonetheless, continued efforts to fully implement the economic program remains essential to strengthen macroeconomic stability and provide the basis for strong, sustainable growth.” “Despite recent consolidation efforts, Romania faces major fiscal challenges. The deficit needs to be reduced to stabilize the public debt-to-GDP ratio and to comply with the criteria for accession to the euro area. The 2010 deficit target strikes an appropriate balance between accommodating the still weak economic situation and medium-term consolidation objectives. However, the adjustment strategy entails politically difficult spending decisions and will require strong and steadfast implementation. The authorities are prepared to take additional measures, if necessary, to ensure attainment of their fiscal objectives. Additional reforms to strengthen fiscal controls are crucial, including in expenditure commitments, contingent liabilities, and public entities outside the central government. The authorities are strongly committed to pursue further structural reforms to permanently address the fiscal challenge and improve economic growth. Pension reform, public employment and wage reforms, and improvements in public sector efficiency will be key. “The inflation targeting regime and flexible exchange rate policy have helped to cushion the impact of the crisis while providing an appropriate anchor for monetary policy. In 2010, the central bank will give priority to bringing inflation within its target band, which will require a cautious approach to further monetary easing.
“The Romanian financial sector continues to weather the crisis well, despite increasing non-performing loans. Continued supervisory vigilance will be necessary to respond to threats to the stability of the system, as well as to possible spillover effects,” warns the IMF official in the end of his statement. Source: Agerpres.
EIB investment in Romania at EUR 1.473 billion in 2009
About 1.9 % of the record credit volume worth EUR 79.102 billion that the European Investments Bank (EIB) provided last year went to Romania which benefited from loans totaling EUR 1.473 billion, read the annual figures the EBI supplied for 2009. The European Investments Bank gave Romania credits worth EuR 4.389 billion, over 2005 – 2009, namely about 1.6 % of the total of EUR 2,777.699 billion as the Bank gave over the past four years, bank sources said. In 2009, the largest loan EIB gave to Romania was that worth EUR 400 million taken by Ford to reequip its plant in Craiova, whereas the EUR 395 million credit lent to Metrorex to build a new subway line comes the second. There was also a loan worth EUR 200 million given to Petrom to have a power plant using natural gas built nearby Ploiesti. The EIB increased its total lending volume in 2009 to EUR 79 billion, a 37 % rise from EUR 58 billion in 2008. The European Investments Bank proved to be a solid pillar of financial stability in the extremely difficult current economic context of the year 2009. It succeeded attaining and even exceeding its ambitious targets it set for 2009. We showed, we were able to make a considerable contribution to the European economy, EIB president Philippe Maystadt stressed. The EIB is the EU lending institution established in 1958 under the Treaty of Rome, and its headquarters is located in Luxembourg. The bank’s owners are the EU member states, whose lending activity mainly finances projects promoting a balanced regional development and the economic and the social cohesion in an enlarged European Union. EIB’s activities in Romania cover a wide range of sectors, such as the infrastructure of the manufacturing, the services, the support to the Small and Medium-sized Enterprises (SMEs) as well as the education and the promotion of the economy relying on knowledge. Source: Agerpres.
European financing for energy efficiency projects
A number of 19 Romanian companies received EUR 15.9 million in European funding under the Energy Efficiency Financing Facility (EEFF), a program developed by the European Commission and the European Bank for Reconstruction and Development (EBRD) for the financing of energy efficiency projects in the private industrial sector, shows data provided to Agerpres by design and consultancy company Tractebel Engineering. Through this program, companies in the private industrial sector can receive up to EUR 2.5 million in financing for energy efficiency investments, free technical assistance with working out the relevant bankable documentation, as well as a grant of 15 % of the loan’s value, after the implementation and verification of the investment.
According to the cited source, the 19 projects are worth an aggregate EUR 25.6 million. Eight of the projects that received funding are already operational. The bulk of the applications for financing refer to equipment. Eligible for the Energy Efficiency Financing Facility are greenfield investments, investments in renewable energy and those with an annual internal rate of return (IRR) below 10 %. EEFF loans are intended for companies planning investments that result in 20 % energy savings, such as investments in cogeneration systems (CHP), the upgrading of boilers (automation, economizers, burners, insulation systems), the replacement of boilers, of heating, ventilation or cooling systems with more energy-efficient equipment, the improvement of technological processes (that result in energy savings), the improvement of steam distribution (condensate recovery), Energy Management Systems or Building Management Systems, building insulation. EEFF is being developed by the European Union and the European Bank for Reconstruction and Development in several countries in the region and is aimed at reducing overall energy consumption in energy intensive sectors, as well as associated greenhouse gas emissions. In Romania, EEFF is managed by design and consultancy company Tractebel Engineering which has been known so far as Trapec SA, a member of international group GDF Suez. Source: Agerpres.
IMF Board to discuss Report on Romania, on February 19
International Monetary Fund (IMF) Board of Governors will discuss on February 19 the Evaluation report on the fulfillment of provisions of the Stand-By Agreement with Romania, following which the third and the fourth loan tranches could be transferred, according to an information released on the IMF site. In case the latest assessment report on Romania's progress under the loan agreement, drafted by the mission headed by Jeffrey Franks, visiting Bucharest on Jan. 20 through 27, is approved two new aid tranches - the third and the fourth - will be released, in the total value of EUR 2.3 billion. On the occasion of the press conference given in Bucharest, Jeffrey Franks said he was satisfied by the result of the analysis and talks with the Romanian authorities, underlining he was going to recommend to the Board the conclusion of the assessment report and, implicitly, the disbursement of the two tranches. Half of the EUR 2.3 billion will go to Romania's National Bank for the consolidation of its foreign currency reserve and half into the accounts of the Ministry of Public Finance, for balancing the budget deficit. The agreement signed by Romania and IMF last year, in May, stipulated the disbursement of a loan in the total value of EUR 12.9 billion, divided into eight tranches. So far, Romania was transferred the first two tranches from IMF in total value of EUR 6.9 billion, as well as EUR 1.5 billion from the five-billion euros loan given by the European Union. The EU is expected to transfer to Romania the second tranche, in the value of EUR 1 billion. Finance Minister Sebastian Vladescu stated lately that in the summer Romania could opt for a new type of agreement with IMF, a Precautionary Stand-By. Mihai Tanasescu, senior advisor with the International Monetary Fund, told AGERPRES that ''the discussion about the transition to a Precautionary-type agreement is a little premature and we might assess such a decision in April or May 2010, when the next IMF mission is due in Bucharest. This goal requires to be carefully examined in the general context. In case a decision is made to replace the Stand-by with the Precautionary Stand-by Agreement, this would send a highly positive signal, given that Romania is to continue its reforms under an IMF program and will also prove that it has overcome a difficult moment and can secure financing on its own from the domestic and foreign markets. At the same time, such a decision would show that Romania has a very firm commitment towards continuing reforms''.
