Development Policy Operation - DDO

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The objective of the Development Policy Loan with a Deferred Drawdown Option Program for Romania is to support the Government of Romania's efforts to meet the fiscal sustainability goals as defined by the European Union (EU) fiscal compact. Since late, 2008, Romania has had to cope with persistent economic difficulties and financial turbulence in the EU and elsewhere. Despite the resumption of growth in 2011, Romania's economic prospects in 2012 remain weak. Although the country is currently able to raise sufficient financing on both domestic and international markets, its access to capital markets could be constrained at any point by the higher-than-usual volatility in the international markets, particularly in the EU. To address these challenges, the Government has approached the World Bank and other International Financial Institutions (IFIs) for support. Main risks stem from the economic and financial turmoil in the Euro zone, and domestic politics. The medium term recovery of the Romanian economy relies on foreign direct investment (FDI), domestic demand and export growth. A prolonged global economic slowdown and in particular delayed recovery in the EU could stall investment and depress exports. These risks are compounded by low absorption of EU structural and cohesion funds, and the need to refinance the sizeable short-term debt. Domestic political risks stem from the electoral agenda of 2012, with local and parliamentary elections scheduled for June and November, 2012, respectively. Social risks include the lingering effect of the 2010-11 fiscal austerity measures, and may increase with the anticipated economic slowdown and resulting impact on employment and wages. The Government's capacity can affect its ability to formulate, coordinate and implement policies and programs.