New 3.5bn-euro IMF arrangement has been approved

The new two-year precautionary arrangement with Romania, which starts on March 31st, has received the green light from Washington on Friday, and is set to focus on stimulating the economy by means of structural reforms and by improving infrastructure.

The biggest problem is that of arrears of state-owned companies, which are much higher than government arrears, according to Jeffrey Franks, chief of the IMF mission to Romania. He told Mediafax that Romania would come out of recession at the end of March, and that economic growth would pursue an upward trend from one quarter to the next.

According to Franks, Romania cannot afford the luxury of cutting taxes and increasing the budget deficit in order to stimulate the economy.

Over the course of the old arrangement with the IMF, the economy failed to come out of recession, with state-owned companies continuing to record huge losses and accumulate arrears. Fiscal consolidation needs to continue in Romania in order for the budget deficit to be reduced, especially amid a low absorption of EU funds and public spending being "infested" by inefficiency, says the chief of the IMF mission.