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With strong trade and financial sector linkages, Romania is exposed to the euro area crisis. Fiscal and external reserves provide a buffer and the banking sector remains well-capitalised. At the same time, the political situation has become more unsettling with three governments in 2012, uneasy cohabitation between the President and the governing coalition that has sought to remove him, and parliamentary elections to be held in the fall. The political uncertainty has contributed to accelerated exchange rate depreciation and higher financing costs, and has dented confidence
Romania’s overall track record under the programme continues to be good. All performance criteria for the sixth programme review were met except the one on reducing central government arrears, which was missed by a small margin. All indicative targets, except the ceiling on the stock of local government arrears, were met. Corrective actions are being taken to reduce the stock of arrears and prevent accumulation of new arrears. The structural benchmarks on increasing electricity prices, integrating the accounting reporting system with the Treasury payment system, and preparing comprehensive amendments to the health care legislation were met. However, progress on the structural agenda, in particular privatisation of public enterprises, has remained slow. As prior actions for completion of this review, the government has committed to undertake public offerings of shares in two public enterprises where preparations are more advanced.
A prudent fiscal and monetary policy stance and decisive implementation of the structural reform agenda are needed to ensure macro-economic stability and increase growth.
Improving EU funds absorption is a priority to unlock significant resources that would help further real convergence with other European countries.