Tal og statistik

IMF Executive Board Concludes Article IV Consultation with Romania

By  | 

Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes Article IV Consultation with Romania







August 30, 2019















On August 28, 2019 the Executive Board of the International Monetary Fund
(IMF) concluded the Article IV consultation

[1] with Romania.

Economic growth in Romania was strong in 2018, reflecting pro-cyclical
fiscal policy and rapid wage increases. Unemployment reached record lows
and financial sector is stable. Fiscal and current account deficits have
been widening in the past few years, reaching respectively 2.8 and 4.5
percent of GDP in 2018. Although the National Bank of Romania’s (NBR)
inflation target was met in 2018, inflation is gathering pace, with
headline inflation exceeding the target band since February 2019.
Structural reform agenda remains stalled and investment growth lagged the
broader economic activity.

Growth in 2019 is expected to stay above potential at 4 percent, led by
continued fiscal stimulus and strong wage growth, and be accompanied by
further widening of current account and fiscal deficits. Inflation in 2019
is expected to stay above the NBR’s target band. Growth is expected to
moderate to 3 percent in the medium term as the transitory effects of the
fiscal stimulus fade. Lack of progress on structural reforms and subdued
investment will constrain potential growth over the medium term.

With macroeconomic imbalances becoming increasingly evident, eroding
buffers and undermining Romania’s capacity to withstand adverse shocks,
there is a risk that the income convergence with the EU could suffer a
setback. The key domestic risk is an increase in vulnerability caused by
policy shocks, including further fiscal stimulus or regresses on structural
reforms. Externally, the key risk stems from a sharper-than-expected
external slowdown, which would widen the current account deficit,
magnifying financing pressures. While Romania’s moderate public debt and
reserves can provide a temporary cushion, these buffers can prove
insufficient under an adverse event.

Executive Board Assessment

[2]

Executive Directors agreed with the thrust of the staff appraisal. They
welcomed the strong economic growth and low unemployment, but raised
concerns about widening current account and fiscal deficits and renewed
inflation, as well as lagging structural reforms and investment. To address
the growing imbalances, Directors called for shifting from procyclical to
countercyclical fiscal policy, complemented by a tighter monetary policy
stance and greater exchange rate flexibility. They further supported
strengthening policy predictability and renewing structural reform
initiatives to sustain convergence to average EU income levels.

Directors called for a durable fiscal consolidation to help curb the twin
deficits and reduce the burden on monetary policy. They encouraged
sustained fiscal reforms to achieve consolidation over the medium term and
improve budget composition. Directors supported meeting this year’s budget
target with quality measures, including shifting expenditures away from
rigid spending–such as wages and pensions–towards investment, reversing the
trend of declining public investment in recent years. They cautioned that
the new pension law could undermine fiscal sustainability and should be
subjected to a comprehensive review, balancing social, equity and
investment needs in line with available fiscal space. Directors also
encouraged modernizing revenue administration by upgrading IT systems and
improving compliance risk management, and improving expenditure efficiency
and transparency through stronger expenditure reviews and the procurement
process.

Directors supported further monetary policy tightening, given continuing
inflation pressures. They encouraged further action beyond tight liquidity
management to rein in inflation, which would support the credibility and
independence of the central bank.

While welcoming the strong banking sector performance, Directors noted that
efforts to strengthen financial stability should continue, including
sustaining the good progress on implementing the 2018 FSAP recommendations.
They called for measures to increase resilience to risks stemming from high
bank exposure to the Romanian state and encouraged close monitoring of the
new tax on bank assets due to its potential impact on monetary policy
transmission and credit allocation. Directors also noted that the new
AML/CFT legislation should be followed by a robust implementation.

Directors emphasized the need to re-energize the structural reform agenda
to improve Romania’s medium-term growth prospects. They noted that public
investment should be increased by focusing on public infrastructure and
achieving a more efficient absorption of EU funds. Directors called for
moving ahead with the state-owned enterprise reform agenda to improve the
quality of public goods and services. They recommended moderating minimum
wage hikes and linking changes to a set of objective criteria that reflect
productivity. Directors further highlighted that Romania’s fight against
corruption should be renewed, noting that these reforms could alleviate
constraints on growth, enhance competitiveness and facilitate investment.



Romania: Selected Economic Indicators, 2017


20

Population: 19.6 million (2018)

Per capita GDP: US$12,301 (2018)

Quota: 1,811 million SDRs (0.4% of total)

Literacy rate: 99%

People at risk of poverty: 35.7% (2017)

Key export markets: European Union (Germany, Italy, France)

Main products and exports: Machinery and transport
equipment, manufactured goods

2017

2018

2019

2020

Proj.

Output

Real GDP growth (%)

7.0

4.1

4.0

3.5

Output gap (%)

1.8

2.1

2.4

2.1

Employment

Unemployment (%)

4.9

4.2

4.3

4.6

Prices

CPI inflation (%, period average)

1.3

4.6

4.2

3.3

General government finances (% GDP)

Revenue

28.0

29.4

29.8

30.5

Expenditure

30.8

32.2

33.5

34.0

Fiscal balance

-2.8

-2.8

-3.7

-3.5

Primary balance

-1.7

-1.5

-2.3

-2.1

Structural fiscal balance 1/

-3.5

-3.6

-4.1

-4.0

Public debt (including guarantees)

36.9

36.7

37.4

38.6

Money and credit

Broad money (% change)

11.5

8.8

12.0

9.0

Credit to the private sector (% change)

5.7

8.0

8.1

6.5

Policy rate (%)

1.75

2.5

Balance of payments

Current account (% GDP)

-3.2

-4.5

-5.5

-5.2

FDI (% GDP)

-2.6

-2.5

-2.5

-2.4

Reserves (months imports)

4.9

4.3

3.9

3.7

External debt (% GDP)

49.8

48.1

47.3

46.5

Exchange rate

REER (% change)

2.0

4.4

Sources: Romanian authorities, World Bank, Eurostat and IMF
staff calculations.

1/ Fiscal balance (cash basis) adjusted for the automatic
effects of the business cycle and one-off effects.




[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.imf.org/external/np/sec/misc/qualifiers.htm
.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Andreas Adriano

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








Print Friendly, PDF & Email

Hold dit netværk orienteret