First Fiscal Effectiveness and Growth Development Policy Loan

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The Fiscal Effectiveness and Growth Development Policy Loan (FEG-DPL) is the first of two loans in support of the Romanian government’s reform priorities. The government has requested Bank support for its efforts to enhance Romania’s growth potential by improving the efficiency and effectiveness of public resources and building up key markets. The FEG-DPL series is structured around two pillars: (i) strengthening fiscal management and state owned enterprise (SOE) performance; and (ii) improving the functioning of property, energy, and capital markets. After the 2008 global financial crisis, sound macroeconomic policies helped Romania restore stability and modest growth, but medium-term growth prospects are compromised by constraints on productivity that are associated with the ineffectiveness of public interventions and the poor functioning of markets supporting private sector activities. The series, which build upon previous policy lending to Romania, is at the core of the country partnership strategy (CPS) for 2014-18, particularly the pillars on growth and modernization of the public sector. The government is working to make fiscal policy more effective as part of the next stage of fiscal reforms. The present FEG-DPL will complement precautionary financial assistance arrangements with the international monetary fund (IMF) and the European Union (EU). The FEG-DPL series takes into account lessons learned from previous development policy lending and International Bank for Reconstruction and Development (IBRD) support. It builds on three lessons about what is essential for results: (i) strong government ownership; (ii) significant new supportive policy initiatives that are directed to high-priority issues; and (iii) a solid track record of Bank engagement. The government requested the FEG-DPL to support its institutional reforms to strengthen fiscal effectiveness, SOE performance, and market institutions, all of which are high-priority reform areas with deep Bank engagement.