“Escalation of domestic political tensions, particularly in advance of presidential elections in November 2014 could lead to policy reversals, which could put the attainment of program objectives at risk,” the IMF said in its staff report on Romania’s loan request.
It said “vested interests” could lead to attempts to delay already overdue structural reforms in Romania, mainly regarding state-owned enterprises.
“These reforms, which include the energy and transportation sectors, are macrocritical given that they could spur economy-wide investment and growth and facilitate the development of underutilized energy resources,” the IMF said.
Failure to implement such reforms could exacerbate existing bottlenecks and lead to a permanently lower growth trajectory, the report noted.
In addition, renewed political uncertainty in the run-up to elections in 2014 could weigh on investor and consumer sentiment, the IMF said.
However, the downside risks are mitigated by “the authorities’ strong commitment to the IMF program and the country’s sound track record under the previous two programs.”
The IMF’s executive board last week approved a new EUR1.98 billion precautionary credit line for Romania, the third such financial package the eastern European country has received in the last four years.
Romania also requested EUR2 billion in financing from the European Union, while EUR1 billion remains available under a World Bank policy loan.