Statement at the Conclusion of the IMF Mission to RomaniaPress Release No. 07/38
March 6, 2007
The following statement was issued today in Bucharest, Romania, at the conclusion of an International Monetary Fund (IMF) staff mission:
"The IMF mission that visited Romania during February 21-March 7, 2007, held the regular annual consultation with the Romanian authorities. The final report on the discussions will be presented to the IMF Executive Board at the end of May. Accession to the European Union was a significant milestone that followed a period of important accomplishments. Output growth was strong in 2006, substantial disinflation took place, and unemployment fell sharply. While prospects remain positive, there is no room for complacency for Romania to bridge the significant gap that still exists with EU living standards. The confluence of positive factors that led to the positive developments in 2006 cannot be counted on to continue. The external environment has been benign, but, as witnessed in early March in various prominent international markets, can quickly become volatile and unpredictable.
"While the mission is encouraged by the positive results in 2006, it believes that more attention is required on addressing the vulnerabilities in the economy, particularly the balance of payments, in order to sustain the good results. The current unsettled external environment and increased risks due to the widening current account deficit, place a high premium on appropriate fiscal and monetary policies as an insurance against sudden shifts in market sentiment. To support the macroeconomic objectives and relieve some of the pressure off monetary policy, the mission strongly urges the authorities to tighten fiscal and wage policies. In light of the ongoing private sector boom and in order to preserve macroeconomic stability, we favor a withdrawal of fiscal stimulus by aiming for a general government deficit of below 1 percent of GDP this year, and a smooth path for medium-term fiscal consolidation. A single annual wage increase should be incorporated in the state budget commensurate with lending support to anchoring low inflation expectations.
"The authorities' emphasis on real convergence prior to euro adoption underscores the urgency of structural reforms. While we agree that the envisaged timetable for euro adoption represents a pragmatic recognition of political economy constraints, we also see a risk that it can lead to a more gradual implementation of policies needed for convergence. We therefore recommend that a balanced approach in this area also contains the right incentives for accelerated reform.
"We understand that the authorities are to publish shortly the concluding mission statement in line with established practice."