The Executive Board of the International Monetary Fund (IMF) has completed the sixth review of Romania’s economic performance and has approved the EUR 904 million loan tranche for the country. This brings the total disbursements under the program to EUR 12.44 billion so far.

The IMF also approved Romania’s requests for waivers of nonobservance on general government domestic arrears and on the general government overall balance, guarantees and for the target on inflation at end-December 2010.

“Policy implementation under the Fund-supported arrangement has remained strong. However, progress on the elimination of domestic arrears has been slower than envisaged. The authorities have taken important structural measures, including pension and public wage reforms and the passage of a prudent 2011 budget,” said John Lipsky, First Deputy Managing Director and Acting Chair of IMF's board.

In this respect, further efforts are crucial in the health care sector and in public enterprises to control spending pressures. Improving absorption of European Union structural funds should become a top government priority. Efforts to improve tax administration should continue,” he went on.

The jump in inflation due to the recent value added tax increase is temporary, but continued caution is nevertheless needed in gauging the timing and remaining room for further monetary easing. The banking system remains liquid and well-capitalized, but continued vigilance in financial sector supervision is crucial to assure financial sector resilience against increasing non-performing loans and the unsettled regional situation, according to the IMF.

The stand by agreement with the IMF was approved in May 2009 in the amount of EUR 13.46 billion. The arrangement entails exceptional access to IMF resources, amounting to 1,111 percent of Romania’s quota.

Romania currently plans to access an extra cautionary loan from the IMF, of around EUR 3.6 billion, according to Romania media, quoting sources close to the discussions.

editor@romania-insider.com