A joint mission to Romania from the European Commission services, the International Monetary Fund and the World Bank concluded that conditions for the third disbursement of the EU Balance of Payments assistance programme were met. Although important efforts are made by Romanian authorities some measures are still to be put in place in order to meet all EU requirements.

The joint European Commission, International Monetary Fund (IMF) and the World Bank mission visited Bucharest from 26 July to 4 August, to assess implementation of the policy programme under the 20 billion euro multilateral assistance package agreed for multilateral financial assistance to Romania.

The European Commission services concluded that the conditions for the third disbursement of the EU Balance of Payments assistance programme (EUR 1.2 bn) were met, as the ambitious fiscal consolidation measures agreed with Romanian authorities in May and June were implemented as planned.

Progress is being made regarding other reforms agreed under the programme, which are conditionality for the next installments of the EU loan. The pension reform is set to be adopted by Parliament in September and an independent Fiscal Council was recently created to strengthen the fiscal policy framework. Furthermore, the Romanian government is determined to take measures to accelerate the absorption of EU Structural Funds and to combat tax fraud and evasion. In the financial sector, the funding regime and governance structure of the deposit guarantee fund will be enhanced by end-September 2010, as planned.

The mission concluded that these measures appeared sufficient to reach the agreed budget deficit targets of 6.8 and 4.4 percent of GDP (in cash terms) in 2010 and 2011, respectively (7.3 and 4.9 percent of GDP in ESA terms). Romania remains committed to reduce its deficit below 3 percent of GDP in 2012.

However, continued weakness in domestic demand, developments in the region, and the recent floods will probably delay the economic recovery. Real GDP is expected to decline by 1.9 percent in 2010, and positive growth is expected for 2011 and beyond. Inflation will increase temporarily due to the increase in the main VAT rate that became effective in July. Inflation is expected to decline to around 3 percent in the course of 2011.