The IMF expert team in Romania has wrapped up the talks with officials in Bucharest on the second quarterly review of the stand-by arrangement with the country, the Fund said in a statement. A staff level agreement has been reached as most of the end-2013 performance criteria were met, and structural benchmarks have either been met or are nearing completion. The first quarterly review was blocked in December by President Traian Basescu's resistance to the car fuel excise tax hike and the issue remains problematic, without however impeding the smooth continuation of the agreement with the Fund. The Fund's board might endorse the first two quarterly reviews of the deal with Romania in mid-March, unofficial sources quoted by Ziarul Financiar daily informed earlier this week. On the car fuel excise tax, the government plans to hike it as of April despite the president's opposition – which is technically possible as long as the stipulation is not formally included in the letter of intent to the IMF- which needs the president's endorsement. Nonetheless, it does not mean that the excise tax hike will be implemented straightforward as President Basescu is likely to make the ruling coalition pay the price for the unpopular tax hikes. On the Fund's side, the IMF experts accepted to have the government freezing part of the public spending proportionate to the loss of revenues generated by the three-month delay in the increase of the car fuel taxes. The frozen funds would be unblocked in case the revenues match the target despite the postponement. Another problem spotted by the Fund is related to the stall in the public payment arrears' reduction . However, corrective actions are being launched, including budgetary transfers and restructuring measures, the Fund's statement reads. An action plan to sustainably lower the arrears over the medium term will be defined. The macroeconomic developments sketched by the Fund as well as the forecast for this year are rather optimistic. The Fund's forecast indicates 2.2% GDP growth this year, driven by a certain improvement in the domestic demand. Domestic demand is going to firm on the basis of a supportive policy framework, better absorption of EU funds, and an improvement in confidence, the Fund comments. On an even more optimistic note, the Fund expects banks to strengthen local currency lending . Combined with the government loan guarantee programmes, the considerable reduction in lending rates driven by the accommodative monetary policy should enable lending activity in lei to start a modest recovery, the Fund said.
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