Since the filing of the International Monetary Fund's (IMF) 2002 Report on the Observance of Standards and Codes (ROSC), Romania has significantly progressed in fiscal policy transparency, motivated by the goal of European Union accession. Accession took place on January 1, 2007. Legislative reforms in 2002 and 2004 helped bring Romania into greater compliance with the IMF Fiscal Policy Transparency Code, particularly with the passage of the Law on Public Finance and the consolidation of fiscal legislation into the Fiscal Code of 2004. On May 4, 2005, Romania became a subscriber to the IMF's Special Data Dissemination Standard.

General Overview

In 2002, during Romania's run-up to European Union (EU) accession (which occurred on schedule in January 2007), the International Monetary Fund (IMF) issued a Report on the Observance of Standards and Codes (ROSC) dealing with Romania's fiscal policy and the transparency thereof. According to the report, Romania had progressed toward greater fiscal transparency, and had intensified the pace with which its fiscal policy formulation and implementation was carried out. The reforms were largely in the sphere of new legislation, and the ROSC authors cautioned that "for these reforms to have a prompt and lasting impact, particular attention will need to be placed on ensuring that legislative changes are effectively operationalized within the public sector" (p. 1).

A major accomplishment in this regard was Romania's subscription, in May 2005, to the IMF Special Data Dissemination Standard, and its subsequent publication on the SDDS bulletin board of comprehensive data in all the requisite SDDS datasets, as well as summary methodologies. The SDDS website makes it evident that Romania meets or exceeds IMF requirements for timeliness, periodicity, and coverage of nearly all required datasets, availing itself of the timeliness flexibility option in the areas of the producer price indices and central bank analytic accounts. Another important step toward greater flexibility was the 2002 passage of the Law on Public Finance, which established a budget calendar and significantly reduced the number of extra-budgetary funds. Afrodita Pope, assessing Romania's budget performance for the International Budget Project's "Open Budget Index," assigned a rating of 66% ("substantial" openness) in 2006. Pope noted that Romania makes publicly available four of the seven key budget documents covered by the project's assessment: the Executive's Budget Proposal, In-Year Budget Reports, Year-End Report, and Auditor's Report. It does not produce a Pre-Budget Statement, Citizen's Budget, or Mid-Year Review.

The 2002 ROSC made a number of recommendations aimed at improving Romania's performance in fiscal transparency. Among these was the further development of a formal medium-term budget framework that should be included in the budget document, along with a clear statement of contingent liabilities, fiscal risks, and tax expenditures. It also advocated the adoption of commitment-based accounting procedures and continuing efforts to create an appropriate professional Code of Ethics.

Romania's fiscal policy is underpinned by the Romanian Constitution, which is augmented by a range of supplementary legislation. In January 2004, many of these laws were consolidated into a single Fiscal Code, at which time the provisions of the various legislation were more closely aligned to one another and to international, particularly EU practice. Also in 2004, Romania passed new tax legislation, which simplifies the tax structure, and the Fiscal Procedure Code, which seeks to resolve procedural issues and further contributes to transparency. In the same year, the Laws on Audit and Accounting were amended as well, as was the Statute of the Chamber of Financial Audits. An Ethics Code covering the personnel involved in conducting internal audits was also published.

The full text of much of the legislation dealing with fiscal policy and its implementation is available to the public on the Ministry of Public Finance (MPF) website. According to the website, the MPF is the primary government institution responsible for Romania's fiscal policy and its management. Its legal charter is found in the Law Regarding the Organization and Operation of the Romanian Government and its Ministries (No. 90, 2001). The Law Regarding Public Finance (No. 500, 2002) and the Government Decision Regarding the Organization of the Ministry of Public Finance (No. 267) set forth the terms and conditions according to which the MPF is to implement the government's policies and strategies. Other agencies involved in fiscal policy include the National Agency for Fiscal Administration (NAFA, established in 2003), and the Committee for Public Internal Audit (established in 2004). NAFA is the agency most involved in tax collection, the maintenance of tax records, and providing taxpayer assistance. The Committee for Public Internal Audit is an advisory body dealing with issues of internal public financial control. A 2003 amendment to the Constitution established the independence of the members of the Court of Accounts, which has been given special responsibility to oversee the privatization process.

The Government of Romania published its "Government Program 2005-2008" in 2004, in which it laid out the main concerns for fiscal policy during the program's four-year period. These included further fiscal decentralization, a specific commitment to transparency in the field of public expenditure, and ongoing efforts in the harmonization of Romania's budget legislation with those of the European Union as a whole. In 2007, the IMF released a new Article IV Consultation, in which it noted that some problems in transparency still persist. Most notably, the report cited multiple budget revisions and a failure to elaborate medium-term policies and objectives as contributing to less than optimal credibility in the budget process.

The Principles

Clarity of roles and responsibilities.

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The Constitution of Romania provides a clear distinction among the executive, legislative, and judiciary branches of the government. Separate legislation on state and local public finance and inter-governmental fiscal relations clearly sets forth the individual responsibilities at the various agencies and levels of government. The independence of the National Bank of Romania, Court of Accounts, and the Institute of National Statistics is also established by statute. The texts of these laws can be found in consolidated form in the Fiscal Code, which is published on the website of the MPF. As early as its 2002 ROSC, the IMF found the legislative and administrative framework for Romania's fiscal policy management to be clear and straightforward. In the words of the report: "Mechanisms for the coordination and management of budgetary and extrabudgetary activities are generally well defined.... Mechanisms for the coordination of the budget and the NBR and public financial institutions are fairly well defined. (pp. 7, 8)

According to the MPF's website, the MPF is the primary government institution responsible for Romania's fiscal policy and its management. Its legal charter is found in the Law Regarding the Organization and Operation of the Romanian Government and its Ministries (No. 90, 2001). The Law Regarding Public Finance (No. 500, 2002) and the Government Decision Regarding the Organization of the Ministry of Public Finance (No. 267) set forth the terms and conditions according to which the MPF is to implement the government's policies and strategies. Other agencies involved in fiscal policy include the National Agency for Fiscal Administration (NAFA, established in 2003), and the Committee for Public Internal Audit (established in 2004). NAFA is the agency most involved in tax collection, the maintenance of tax records and providing taxpayer assistance. The Committee for Public Internal Audit is an advisory body dealing with issues of internal public financial control. A 2003 amendment to the Constitution established the independence of the members of the Court of Accounts, which has been given special responsibility to oversee the privatization process.

Open budget processes

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In 2002, the IMF's ROSC team reported that Romania was still moving toward the adoption of a budget classification system that met international standards. The same report approved of the transparency with which budget formulation, presentation, and approval were carried out. The ROSC noted that the budget is submitted in draft form to the Social and Economic Council for debate prior to the parliamentary review and approval. At this time, changes may be offered, and parliament has the right to incorporate such changes. The MPF has issued thorough guidelines that govern the budget process at the local government level. The ROSC reported in 2002 that Romania carried out careful budget monitoring during the fiscal year, and adjusts its execution on an ongoing basis to keep on track with its overall targets. At the time of the 2002 report, the accounting system was only semi-automated and not fully comprehensive, given the number of quasi-fiscal activities then permitted. This raised questions as to the validity of its data. However, the ROSC did commend the general timeliness and periodicity, and noted that improvements in the process were ongoing.

The ROSC added that the Ministry of Public Finance published monthly data on the central government's budget execution. The Law of Local Public Finance requires that local public authorities provide detailed reports on the execution of their own budgets. One problem noted by the IMF's 2002 assessment was the failure to clearly distinguish estimated costs of new initiatives and ongoing projects, and the lack of a systematic presentation of major fiscal risks. The ROSC staff recommended that the annual budget document include in-depth analysis of contingent liabilities and tax expenditures, and that proposed budget revisions be brought before the parliament for discussion prior to their adoption.

Public availability of information.

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At the time of publication of the 2002 IMF ROSC, the availability of information on the government's fiscal activity was deemed to be largely adequate, reliable, and provided in a timely manner. The ROSC found it particularly noteworthy that the Constitution explicitly grants its citizenry the right of access to public information. This right is elaborated upon in Law No. 544 of 2001, the Law on Free Access to Information of Public Interest. With Romania's 2005 subscription to the IMF's SDDS, Romania had achieved even greater transparency in its provision of statistical data. The SDDS website discloses that Romania meets or exceeds IMF specifications in all the requisite datasets, although it takes the timeliness flexibility option in the area of producer price indices and the NBR's analytic accounts. Romania includes summary methodologies for all datasets and advance release calendars, as well.

The Ministry of Public Finance (MPF) provides a wide range of reports dealing with fiscal policy and its implementation on its website. At the time of the 2002 IMF ROSC, Afrodita Pope, assessing Romania's budget performance for the International Budget Project's "Open Budget Index," assigned a ranking of 66% ("substantial" openness) in 2006. Pope noted that Romania makes publicly available four of the seven key budget documents covered by the project's assessment: the Executive's Budget Proposal, In-Year Budget Reports, Year-End Report, and Auditor's Report. It does not produce a Pre-Budget Statement, Citizen's Budget, or Mid-Year Review. Other relevant data can be found on the websites of the central bank and the National Statistics Institute.

The National Institute for Statistics produces quarterly and annual data on the national accounts, following the principles of the European System of Accounts 1995, and included in the International Financial Statistics. The 2007 Article IV Consultation report noted, however, that "quarterly and annual national accounts are not harmonized on a regular basis and late revisions have sometimes been significant" (p. 49). Central government operations data is presented in consolidated form for publication in the Government Financial Statistics Yearbook. The 2007 IMF report does note, however, that there is a significant time lag in reporting. The report adds that "the Ministry of Finance agreed to participate in the high frequency data project to submit monthly and quarterly cash data on the central government according to the GFSM 2001 framework" (p. 50).

Independent assurances of integrity.

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At the time of the 2002 IMF ROSC, Romania's system of accounts reconciliation and fiscal reporting was described as "reasonably effective," and its budget data was deemed "generally reliable" (pp. 17, 18). However, the assessment did find problems with Romania's use of a cash-based accounting system and the lack of clearly explained accounting methodologies. Amendments to the Laws on Audit and Accounting subsequently addressed some of these concerns, as did a 2004 Government Decision that revised the statute of the Chamber of Financial Auditors. With its accession to the EU, Romania became obliged to apply the International Financial Reporting Standards, according to an announcement released in January 2007 on the International Accounting Standards webpage of Deloitte (IAS Plus). Law no. 94, of 1992, established the Court of Accounts as the external audit authority of Romania, reporting directly to parliament. According to the 2002 ROSC, "restructuring in the audit services of Government has been aimed at expanding the capability of the Court to undertake more analytical and performance-focused audit investigations" (p. 18).

The Government of Romania's "Government Program for 2005-2008," published in 2004, set forth several planned actions. One was to decentralize internal control and internal public audit to more closely comply with EU provisions. Another was to delegate the MPFs financial controls to the responsible institutions and public authorities. The program also called for the consolidation and harmonization of regulatory norms regarding fiscal controls as they are applicable to public institutions and authorities. Finally, it called for reform of the Law on Public Finance such that the use of public funds could be rendered more efficient and secure.

In 2004, Law No. 161 on the Ethics Code for Civil Servants went into effect, with the aim to ensure that public dignitaries operate with appropriate transparency, as well as to prevent corruption and provide sanctions in the event of wrongdoing. Provisions in the Law on Public Audit establish rules of appointment and operation for individuals participating in the audit process and provides for remedies to punish violators of the law's provisions.