An International Bank for Reconstruction and Development (IBRD) Deferred Drawdown Option Development Policy Loan (DPL DDO) of EUR 1 billion was approved in mid-June to support the Government of Romania’s commitments under the European Union (EU) Fiscal Compact.
The Compact—the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union—was signed by all EU member states except the Czech Republic and the United Kingdom in March 2012. It requires member states to enforce strict spending and tax requirements to prevent future debt crises.
The treaty also requires national budgets to be balanced or in surplus, that budgetary structural deficits not exceed 0.5 percent of GDP, and that government debt remain below 60% of GDP. Romania, which has lower debt, can reach a structural deficit of 1% of GDP.
Under the Deferred Drawdown Option of the Bank loan, the EUR 1 billion is not drawn immediately by Romania, but rather is available as a fiscal buffer to be called upon if it becomes necessary, and will remain available for the next three years provided Romania follows its macroeconomic and reform programs.