Bancherul - BANCI / ENGLISH / World Bank to provide Romania EUR 400 M before year-end

The World Bank (WB) noted the progress in the implementation of the reform measures agreed and the results achieved to date towards macroeconomic stabilization, at the conclusion of the joint mission to Romania held during July 21 – August 2 with the International Monetary Fund (IMF) and the European Commission (EC), according to a press release. “The Romanian economy has been stabilized and is poised to regain growth momentum”, WB analysts said in a statement last Friday. However, the Bank says that further challenges remain in order to secure full recovery and growth in the short to medium term, due to both global and domestic factors.

WB provided EUR 300 M in June 2011 and aims to provide another EUR 400 M before the end of 2011. This is part of the third Development Policy Loan (DPL 3) which focuses on measures to improve expenditure efficiency and sustain fiscal consolidation. One critical measure to be completed before the DPL 3 can be finalized relates to parliamentary approval of the new co-payment law for medical services. This is integral to measures needed in order to improve efficiency and reduce arrears in healthcare.

In the health system the Bank prepared several technical studies, providing a rich set of policy recommendations for the comprehensive reform of the sector. The envisaged reforms include restructuring the hospital network, definition of the basic package of healthcare services, introduction of the supplementary private health insurance system, and introduction of measures aiming to control the continuous increase of costs with the consumption of pharmaceuticals. A results based project financed by the Bank amounting to EUR 250 M – which is under preparation – will support the implementation of these reforms over the next three years.

Romania should also carry out agreed reforms without further delays towards a well-balanced strategy of attracting private sector investment and developing viable public sector energy companies. Private investment and professional management of public companies is required to ensure the security of energy supply to support economic growth and the quality of life, said WB analysts.

In order to attract private investment, the Government needs to restore the credibility of Romania’s sound commercial practices, competitive energy markets, and implementation of EU-compatible energy laws and regulations. Interventions by successive political decisions have brought the National Authority for Regulating Energy (ANRE) close to non-functionality, WB notes. While energy consumers may benefit from lower prices in the short-term, these practices undermine Romania’s energy security and economic growth, and contribute to tax arrears and foregone important revenues to the state budget.

In energy, subsidies should be directed towards the most vulnerable in society, ensuring access amongst low-income households to basic energy services. As such, WB welcomes the Government’s commitment to retool ANRE by professionalizing its management, listing shares of key energy companies including Hidroelectrica, Nuclearelectrica, and Romgaz on the Bucharest Stock Exchange, and resuming energy reforms in accordance with the Third Energy Package, which the EU approved in 2009.

In the transport sector, the Government has recently taken significant steps to improve the financial situation of its state owned enterprises by encouraging plans to cut costs, and has started to tackle the issue of arrears, especially in the railway sector. However, the challenges facing this sector remain significant, with the need to comply with European regulations, for example on state aid, and to ensure financial sustainability, especially in railway, and to deliver on infrastructure investment. WB is also currently discussing with the Ministry of Transport and Infrastructure the provision of further assistance using funding from the EU in order to improve service delivery and to ensure the efficient use of public and private funds in the sector.