Summary: Stand-by Arrangement: Romania successfully completed in June 2013 a 27-month Stand-By Arrangement (SBA), including a three-month extension, equivalent to SDR 3,090.6 million (€3.4 billion, 300 percent of quota). The authorities have requested a successor 24-month SBA with proposed access of SDR 1,751.34 million (about €2 billion, 170 percent of quota). The first tranche of SDR 194.7 million would be made available upon program approval. The authorities intend to treat the SBA as precautionary and have also requested support from the European Union (€2 billion), while €1 billion remains available under a World Bank policy loan. Program objectives: Since the 2008 global financial crisis, Romania has made significant progress in reducing macroeconomic imbalances and rebuilding fiscal and financial buffers. However, Romania remains vulnerable to external shocks, in particular uncertainties in the euro area as well as global volatility in capital flows to emerging markets. The new SBA would provide a valuable policy anchor and support Romania’s comprehensive economic program for 2013–15 to maintain sound macroeconomic policies and financial sector stability and continue structural reforms to enhance growth prospects. Program conditionality: Romania’s cumulative access, net of scheduled repurchases, would be exceptional given its outstanding credit to the GRA arising from purchases under the 2009–11 SBA. The program calls for continued gradual fiscal adjustment and allows for short-term measures in support of domestic demand. Structural reforms build on the previous program with a focus on arrears reduction. Conditionality is front-loaded via a number of macro-critical structural benchmarks. An Ex Post Evaluation is envisaged for around end-2013 and an update of the Safeguards Assessment by the time of the first review. Staff views: Staff supports the authorities’ request for a new SBA. A precautionary Fund-supported program would foster policy discipline and provide a reserve buffer, while helping to catalyze support for difficult structural reforms and put Romania on a firm path toward exiting from Fund support.

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