By Nick Mann | 14 August 2012

Romania is broadly on track with implementing the reforms and deficit reduction it needs for its next tranche of bailout funds, the three bodies responsible for approving the payout said today.

In their quarterly review, the European Commission, International Monetary Fund and World Bank said Romania’s plan to reduce its deficit to below 3% of gross domestic product this year was ‘achievable’.

However, ‘spending restraint’ was needed and the government would face difficult trade-offs to achieve the additional 0.5% cut planned for next year.

‘Strong political determination will be needed to discontinue nonperforming public investment projects and optimise public sector staffing,’ the three bodies said in a joint statement.

In May 2009, Romania became the third European Union country to secure bailout funds, but it has yet to draw on the majority of the money, which is largely being made available as a precautionary measure. The latest review is the sixth carried out under a second bailout agreement, worth around €5.5bn, which was reached in March 2011.

‘Political determination’ is also needed to ensure introduction of the overdue structural reforms needed to achieve higher and more inclusive growth, the statement said.

Romania has been hit by political instability with president Traian Basescu subject to a referendum last month on whether or not he should be impeached. While 87% voted for his impeachment, turnout failed to reach the 50% minimum needed and the result is now subject to a court hearing on August 31.

This political uncertainty has combined with the slowdown in the eurozone to subdue economic activity, the statement said. Romania’s economy is now projected to grow at around 1% this year and 2.5% in 2013.

‘Inflation is expected to remain within the target band set by the National Bank of Romania. Banks remain vulnerable to adverse developments in the euro area but maintain reassuring capital buffers, while loan-loss provisions are adequate,’ the statement added.

The teams that reviewed Romania’s economy have reached agreement with the country’s authorities on the measures it will take for the next tranche of funds to be made available. These will now be discussed by the Executive Board of the IMF at a meeting scheduled in September and also at a meeting of the EU economic and financial committee in the same month.