The increase in non-performing loans (NPLs) in the
Asked about the increase in NPLs, during a conference call on the third review of
A delegation of
Velculescu said that the main conclusion of the mission is that "the program remains on track although challenges remain".
"The programme remains on track,
Velculescu said that the macro fiscal performance has been better than expected, adding that the Troika expects output to have fallen by around 6 percentage points in 2013, which "represents deep and painful recession which is coupled with falling wages and rising unemployment".
Still, she added, it remains close to 2 percentage points better than forecast during the last review and it is close to 3 percentage points better than the initial program forecast.
According to Velculescu, the performance of the fiscal accounts exceeded programme targets by a significant margin, which "is the result of both prudent execution of budgetary spending last year and of the better revenue performance due to the macroeconomic outturn".
Deposit trends are showing signs of stabilisation in recent months, she also noted.
Delia Velculescu underlined that "important challenges remain" for the economy of
At this point, she explained, "we have not changed the programme forecast for 2014 and beyond which projects output to fall by 4.8% this year and to modestly grow next year by about 0.9%." "Given that the macroeconomic uncertainties surrounding the outlook remain large the authorities will need to continue to implement the 2014 budget prudently, building on their strong fiscal performance to date" she noted.
In the financial sector one key challenge is dealing with the very high level of non-performing loans, she said.
"In this regard banks and the Co-ops will need to put in place adequate arrears management frameworks and the authorities will need to reform the debt restructuring legal framework to provide incentives for borrowers and lenders to negotiate and reach solutions" she added.
Another key challenge, according to Velculescu, is to normalise payment flows in the economy while safeguarding financial stability. "The authorities have a milestone based roadmap to guide this process. With key milestones now completed, the second stage of gradual relaxations of restrictions is expected to start shortly" she said.
With regard to structural reforms "where the authorities' agenda is very ambitious, the challenge is to accelerate reform implementation" Velculescu noted, adding that "a key priority is the reform of the social welfare system".
Moreover, efforts need to be intensified to fight tax evasion and the adoption of the framework law for privatization is a key step to kick-start the process of privatisation of semi-governmental organisations, she said.
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