December brings IMF monitoring

The Government has a little over one month to go before the first IMF quarterly assessment. The performance criteria included in the memorandum are strict and condition the release of the second loan instalment, worth 41.3 million SDR in February 2002.

It remains to be seen whether these criteria can be met at least over the last mile, as it happened with the preconditions for signing the agreement, which were finalised five days before the IMF Board meeting.

Practically, only ten of the eleven preconditions needed for closing the stand-by agreement have been fulfilled. Nine of them were met in due time, according to the official calendar, while one precondition scheduled for October 1 was finalised on October 10.

Other delays were posted in the integral implementation of the measure regarding the opening of functional escrow accounts in the heat sector, aimed to increase the low level of revenues collected in the energy field.

“Although the order regarding the opening of escrow accounts was approved on September 28, the Industry Ministry did not hurry to urge into action the local heat distributors that were hesitating to conclude escrow account contracts with supplier Termoelectrica,” shows an additional report drafted by the IMF experts.

On October 26, 23 of the necessary 28 escrow accounts had been opened in the power sector, including the Bucharest account.

The report drafted by the IMF team dealing with Romania shows that the cumulated budget deficit standing at 2.6% of GDP complied with programme estimates, but the level of revenues was lower than forecast.

Revenue collection in Q3 posted a 5.8% increase in real terms expressed year-on-year, but was also lower than estimated, triggering a shrinkage of revenues, accounting for about 0.38% of GDP.

“While excessive variability of monthly collection (outstanding performance in July, low level in August and September) complicates the assessment of the main trends, the revenue decrease for the entire year is estimated at 0.6% of GDP,” IMF experts say.

On the other hand, the IMF team feels that fiscal policy failed to contribute to inflation cut and stabilisation over the first eight months of the year.

According to IMF experts, the moderate effect of international evolutions upon Romania will maintain, following a potential world economic slowdown partially countered by a cut in oil prices.

Despite recent signs that Romania’s image on international capital markets is becoming increasingly favourable, the bond issues planned for 2002 are leaving Romania rather exposed in case bigger disturbances occur on the capital markets.

“If the disturbances were to prolong, the economic policy should include additional fiscal adjustments, revised target regarding reserve accumulation and additional financing from the International Monetary Fund,” the IMF team report also shows.