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| Conclusions of the IMF mission in Romania 09/02/2011 |
| (2011-02-09) |
| Last updated: 2011-02-10 11:29 EET |
Romanian economy is like a patient stabilized after surgery, but one that we want to see checking out in good health, said IMF mission chief to Bucharest, Jeffrey Franks, following talks with Romanian officials.
Franks added he expected Romania to resume economic growth, and that the risk for the country to remain mired in recession for the third consecutive year was below 10%. To that end, Romania has to solve the issue of arrears, namely overdue payments the government or companies failed to deliver.
Jeffrey Franks:“Progress has been made in eliminating state-budget arrears. However, there are still issues with local arrears, arrears of self-funded institutions and state-owned companies. The arrears of state-owned companies alone represent 5% of the GDP.”
Franks added that, while cutting large taxes such as VAT was a medium-to-long-term objective, this could only be accomplished as Romania meets the deficit targets, 4.4% of the GDP for 2011 and 3% in 2012. Increasing public investment expenses in the public sector, enhancing the absorption of structural funds was also likely to become an engine of economic growth, said Jeffrey Franks:
Jeffrey Franks: “At present, there are 19 billion euros worth of unused capital in Brussels, waiting for Romania to spend on investment. Absorbing 1, 4 or 5 billion euros per year would act as an essential incentive for economic activity.’’
The IMF official further said Romania needed to take immediate action to reduce bureaucracy and set up new companies more easily. However, the greatest challenge remains the thorough restructuring of transport and energy state-owned companies. Romanian president Traian Basescu said Romania might be out of the financial risk area, but it is still struggling with recession.
In addition, the country’s top priority remains the consolidation of economic stability. The Romanian head of state added that the series of mass layoffs is over and that authorities intend to bring salaries in the public sector back to the level prior to budget slashes. Basescu said losses registered by public utilities hold back economic growth.
The president said over half of the Romanian economy was geared on these utilities, which account for about 70% of public debt. Concurrently, government officials have refused to draw the final installment of its loan with the IMF, and have instead accepted the final installment from its 20 billion euro-loan with the IMF, the European Commission and the World Bank.
Romania has signed a new precautionary agreement worth 5 billion euros, with the three institutions, to be drawn only in case of emergency.
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