## War in Ukraine—Spillovers to Romania (content unit: 1rouea2022003) ## Source details **Canonical URL:** [War in Ukraine—Spillovers to Romania (content unit: 1rouea2022003)](https://www.imf.org/-/media/files/publications/cr/2022/english/1rouea2022003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1rouea2022003.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1rouea2022003.pdf.json) --- ### Context and recent developments - Romania faces strong headwinds similar to other EU countries; vulnerability to war spillovers is largely indirect. - Demand is slowing due to lower growth in Europe and higher energy and food prices; high uncertainty and tightening financial conditions weigh on confidence and activity. - Romania is a grain producer and largely self-sufficient in energy; direct trade and financial links with Russia and Ukraine are small. - Pre-pandemic and pre-war: current account and structural fiscal deficits had increased steadily; external position weak and exchange rate appears overvalued. - Political: grand coalition formed in November between PNL and PSD; UDMR also part of the coalition. - Key indicators and recent figures: - GDP: reached pre-crisis levels H1 2021; Q1 2022 growth 6.4 percent y/y. - Headline inflation: 15.1 percent y/y in June 2022 (target band 1.5–3.5 percent). - Price caps on electricity and gas dampened CPI by around 4 percentage points between January and April 2022. - Two-year ahead inflation expectations increased to 4½ percent (above upper edge of target band). - NBR policy rate: raised by total of 350 bps since October 2021 to 4.75 percent; tightening liquidity management. ### War spillovers — main channels (Box 1) - Primary transmission channels: higher commodity prices, diminished trading partners’ demand, refugees, and higher risk premia. - Trade and supply chains: - Around four-fifths of Romania’s trade is intra-EU; Russia and Ukraine account for a negligible share of total trade. - Some of Ukraine’s seaborne trade may be diverted to Romania’s Constanta port. - Ukrainian informal workers present and expected to increase; tourism from Russia and Ukraine insignificant. - Commodities: - Food and energy account for more than a third of the CPI. - Romania is largely self-sufficient in energy and a sizable grain exporter (wheat, corn, barley and sunflower), likely to benefit from high prices. - Energy flows (avg. 2019-21, 1,000 tons of oil equivalent): - Coal: Total 3,664; Domestic 3,160; Imports 504; Import share (%) 13.8. - Crude oil: Total 10,717; Domestic 3,226; Imports 7,490; Import share (%) 69.9; Of which Russia (%) 22.4. - Natural gas: Total 9,733; Domestic 7,526; Imports 2,206; Import share (%) 22.7; Of which Russia (%) 22.7. - Electricity: Total 5,499; Domestic 4,902; Imports 597; Import share (%) 10.9. - Total: Total 29,612; Domestic 18,814; Imports 10,798; Import share (%) 36.5; Of which Russia (%) 15.5. - Refugees and security: - More than 1.3 million refugees had arrived in Romania as of June; majority moved on to other countries. - World Bank approved a loan of $500 million partly to cover refugee-related costs. - Authorities intend to raise defense spending to 2½ percent of GDP from around 2 percent currently. - Risk premia and exposures: - EMBIG spread as of end-June about 150 bps higher than at end-January. - NBR estimates resident banks’ exposure to domestic corporates with majority-Russian capital at 0.05 percent of their total exposures to the non-financial corporate sector. - NBR reported no loans by credit institutions to Russian or Ukrainian counterparties and negligible deposits; no Russian bank operates in Romania. - Tail risks: broader EU gas shut-offs, Black Sea escalation affecting ports, or destabilization of Moldova could be much more disruptive. ### Inflation outlook and projections (High and volatile energy and food) - Energy and food prices expected to remain key drivers of headline inflation over next two years. - Price caps projected to reduce CPI by at least 2 ppts through March 2023 relative to a no-price-cap scenario; removal of caps set to drive inflation up again to double digits (y/y) in April 2023. - Baseline projections (assuming continued monetary tightening at least through year-end): - Average annual inflation: 12½ percent in 2022. - Average annual inflation: persist around 10 percent in 2023, ending 2023 at 7¾ percent y/y. - Core inflation: average 8¾ percent in 2022 and just below 7 percent in 2023. - Risks to inflation and outlook: - Downside risks to growth and upside risks to inflation include broader Russian gas shut-off, further energy/food price volatility, de-anchoring of inflation expectations in advanced economies prompting sharper global tightening, new COVID variants, and domestic political constraints risking stalled reforms and fiscal consolidation. - Upside scenario: decisive reforms under NRRP could raise growth above baseline, ease financing, and stabilize public debt. ### Monetary policy and exchange rate - Monetary policy actions: - NBR reversed pandemic-era cuts; measured and accelerating policy rate increases reinforced by tight liquidity management effectively added another 100 bps in transmission to money market rates. - With the war, NBR resumed moderate government bond purchases, augmented FX sales to stabilize the exchange rate and curb pass-through to inflation. - Counter-cyclical capital buffer currently at zero; increase to 0.5 percent set to become effective in October 2022. - Policy guidance: - Further tightening through end-2022 recommended to help prevent entrenchment of inflationary pressures and support a return of headline inflation within the target band by H2 2024 under the baseline. - Monetary policy must react nimbly: accelerate tightening if inflation expectations de-anchor or wage-price spiral risk emerges; smaller steps possible if core inflation responds strongly to recent hikes. - Exchange rate policy: keep stability to avoid fueling inflation but gradually increase flexibility over time to help absorb external shocks and restore competitiveness. ### Financial sector and credit conditions - Banking sector soundness: - Strong capital, liquidity, and profitability positions post-pandemic. - NPL ratio fell below pre-pandemic levels; loan-loss provisioning remains much higher than EU average. - Private credit growth strong: 15.8 percent y/y in April. - Rapid credit growth over past two years projected to continue in 2022. - Loan repayment moratorium ended March 2021 (most loans repaid by end-2020); a new moratorium came into effect in July 2022 but appears limited in scope. - Macroprudential and supervisory stance: - Banks’ strong capital positions enable setting aside provisions; increase in countercyclical buffer to 0.5 percent in October 2022 is broadly appropriate. - AML/CFT implementation to be strengthened in view of the 5th round of Moneyval assessment and to safeguard against Russia-related risks, including sanctions evasion. ### External sector assessment and current account (Box 2 / Annex IV) - External position and REER: - Cyclically-adjusted CA deficit: 6.7 percent of GDP in 2021. - CA gap estimated around -4.7 percent of GDP, implying an REER overvaluation of 13 percent. - Large residual (-4.9 percent of GDP) implies uncertainty in the assessment. - Key external figures: - Current account deficit: 7 percent of GDP in 2021; rolling four quarters CA at 7.7 percent of GDP Q1 2022. - NIIP improved slightly in 2021 to -45.6 percent of GDP. - FDI accounts for 52 percent of external liabilities in 2021; debt securities 24 percent. - Reserves: gross international reserves stood at 19.1 percent of GDP in 2021; reserves could cover about 4.2 months of prospective imports and are assessed adequate by most metrics. - New grants and loans under RRF available amount to over 13 percent of GDP up to 2026. - Policy implications: - Fiscal consolidation and gradually increasing exchange rate flexibility would be more effective in external adjustment. - Boost capacity to absorb EU funds; consider greater currency flexibility; implement structural reforms to boost productivity and competitiveness. ### Fiscal stance, debt dynamics, and recommendations - Recent fiscal developments: - Fiscal deficit: 2020 deficit 9.8 percent of GDP; 2021 deficit 6.9 percent of GDP. - Public debt (Maastricht): reached 49 percent of GDP (Annex V). - IMF staff projections and stance: - Staff project the 2022 fiscal deficit at 6¾ percent of GDP; authorities’ budget targets deficit of 5.8 percent of GDP for 2022. - Staff assumed revenue administration gains: ¼ percent of GDP in 2022 (more conservative than authorities’ expectations). - Staff advise against further support measures in absence of significant worsening; avoid cuts in planned investments to attain deficit targets; advance revenue-enhancing measures envisaged for 2023. - Medium-term: fiscal deficit projected to decline to 4½ percent of GDP by 2027 under current policies; debt would continue to rise absent stronger measures. - Recommended additional measures: further tax policy measures amounting to about 2 percent of GDP should be implemented to reduce the deficit below 3 percent of GDP and stabilize public debt. - Specific tax reform revenue potential (estimates): - PIT comprehensive reform: could yield more than 1¼ percent of GDP. - Raising VAT efficiency to EU average: could yield 1½ percent of GDP. - Property tax reforms: could yield about ¼ percent of GDP. - Note: announced 2023 tax package estimated to reduce the deficit by about ¾ percent of GDP and was incorporated in baseline projections. - Debt sustainability (Annex V): - Public debt rose from around 36 percent of GDP through 2019 to 51 percent of GDP by 2021. - Baseline primary deficit: 5.4 percent of GDP in 2021; forecast 5.2 percent of GDP in 2022 and decline to 2¾ percent of GDP by 2027. - Gross public debt projected to rise to 58 percent of GDP by 2027. - Stress tests: - Real growth shock: debt-to-GDP rises by 7 percentage points to 65 percent by 2027. - Combined fiscal-macro shock: debt-to-GDP rises by 8 additional percentage points to 73 percent by 2027. - Key balance-sheet features: 54 percent of public debt denominated in or linked to foreign currencies; gross financing needs projected to average 11¼ percent of GDP. ### Structural reforms, EU funds, and investment absorption - NRRP and EU funds: - RRF funds available through 2026 total €29bn; staff projects absorption at 95 percent of available resources (higher than typical ~85 percent). - Authorities formed a cabinet-level task force to ensure timely NRRP implementation. - Structural reform priorities: - Strengthen public investment management: medium-term planning, centralized coordination, pipeline of appraised projects to boost EU funds absorption and implement climate policies. - SOE reform: good governance, professional management, restructuring, increased private ownership. - Improve tax administration (ANAF reforms), VAT compliance, reduce informality to increase revenue and reduce inequality. - Expand digitalization, strengthen anti-corruption framework, improve health and education systems. ### Climate change (Annex I) — targets, costs, and policy instruments - Commitments: - Net zero GHG emissions by 2050; by 2030 a reduction compared to 1990 levels by 55 percent. - NECP and NRRP: - NECP plans 32 percent expansion of power generating capacity compared to 2020, largely renewables and nuclear; coal-fired generation to be reduced by about one-third and replaced by new gas-fired plants. - NECP implementation cost estimated at €150 billion over ten years (annually around 6¾ percent of 2019 GDP). - NRRP commits to reaching 34 percent renewables by 2030; phase out coal mining and coal-fired power generation by 2032; allocates €12 billion (41 percent of NRRP) toward green transition. - Social considerations: - Coal phase-out concentrated regionally implies concentrated social impacts; eligibility for EU Just Transition fund to diversify regional economies. - Carbon pricing scenario: - Illustrative carbon tax: €10 per ton in 2023 rising to €40 per ton by 2030, evenly redistributed, would result in a net benefit for people in the lower half of income distribution. - Energy poverty: more than 20 percent of households in lowest consumption band for electricity; almost one-quarter in lowest gas consumption band. ### Staff appraisal — summary of policy recommendations - Macroeconomic management: - Remain flexible; avoid broad support measures absent significant worsening; if adverse risks materialize, prioritize timely, targeted, temporary transfers to vulnerable households and viable firms. - Prepare credible medium-term fiscal consolidation to rebuild buffers and stabilize debt. - Revenue and expenditure: - Implement tax policy reforms (PIT simplification, VAT efficiency, property tax reform) and strengthen tax administration to raise revenue by about 2 percent of GDP. - Avoid cutting planned public investment; use RRF funds efficiently to support investment and growth. - Implement pension and public sector wage reforms based on formulaic trajectories to improve predictability. - Monetary and financial policies: - Continue monetary tightening to anchor inflation expectations; maintain nimble response to evolving inflation dynamics. - Gradually allow greater exchange rate flexibility as external competitiveness weakens. - Preserve banking system soundness while maintaining credit flow; phase out credit guarantee schemes gradually. - Structural reforms and absorption: - Strengthen public investment management to improve EU funds absorption; accelerate NRRP reforms (digitalization, governance, climate investments). - Strengthen AML/CFT implementation in light of Moneyval assessment and Russia-related risks. *International Monetary Fund — Romania: “War in Ukraine—Spillovers to Romania” (content unit: 1rouea2022003).* ### 1. War in Ukraine—Spillovers to Romania ______________________________________________________________ 5 ### 1. War in Ukraine—Spillovers to Romania ### Context - Romania faces strong headwinds similar to other EU countries; vulnerability to war spillovers is largely indirect (Box 1). - Demand is slowing due to lower growth in Europe and higher energy and food prices. - High uncertainty and tightening financial conditions are weighing on confidence and activity; sovereign risk premia have increased further. - Romania is a grain producer and largely self-sufficient in energy; direct trade and financial links with Russia and Ukraine are small. - Before the pandemic and the war, the current account and structural fiscal deficits had increased steadily. - The external position is weak and the exchange rate appears overvalued (Box 2). - Rising structural budget expenditures were not accompanied by commensurate revenue increases (Annex II). - Additional fiscal pressures from the pandemic and war spillovers—while temporary—are increasing debt and necessitate medium-term consolidation. - Political situation: a grand coalition formed in November between the National Liberal Party (PNL) and the Social Democratic Party (PSD); Democratic Alliance of Hungarians in Romania (UDMR) also part of the coalition. ### Recent developments - GDP reached pre-crisis levels in the first half of 2021 and rebounded strongly in Q1 2022: 6.4 percent y/y. - Output gap turned positive; wage growth remains subdued. - Headline inflation rose to 15.1 percent y/y in June 2022, above the target band (1.5-3.5 percent). - Price caps on electricity and gas (introduced November 2021, expanded February 2022) dampened CPI by around 4 percentage points between January and April 2022. - Core inflation rose more moderately as energy and transport costs feed through to other items, especially processed food. - Two-year ahead inflation expectations increased to 4½ percent, above the upper edge of the target band. - National Bank of Romania (NBR) actions: since October 2021 raised the policy rate by a total of 350 bps, to 4.75 percent, and tightened liquidity management. ### Box 1 — War in Ukraine: Main channels of spillovers to Romania - Primary transmission channels: higher commodity prices, diminished trading partners’ demand, refugees, and higher risk premia. - Trade and supply chains: - Russia and Ukraine account for a negligible share of Romania’s total trade; around four-fifths of Romania’s trade is intra-EU. - Imports of electrical equipment and spare parts from Ukraine and Russia were small. - Some of Ukraine’s seaborne trade may be diverted to Romania’s Constanta port. - Tourism from Russia and Ukraine is insignificant; Ukrainian informal workers present and expected to increase. - Commodity prices and inflation: - Food and energy account for more than a third of the CPI. - Romania is largely self-sufficient in energy and a sizable grain exporter (wheat, corn, barley and sunflower), likely to benefit from high prices. - Tradables prices are linked to those in the EU. - Energy flows (avg. 2019-21, 1,000 tons of oil equivalent, Source: Romanian NIS and IMF staff calculations): - Coal: Total 3,664; Domestic 3,160; Imports 504; Import share (%) 13.8; Of which Russia (%) ... - Crude oil: Total 10,717; Domestic 3,226; Imports 7,490; Import share (%) 69.9; Of which Russia (%) 22.4 - Natural gas: Total 9,733; Domestic 7,526; Imports 2,206; Import share (%) 22.7; Of which Russia (%) 22.7 - Electricity: Total 5,499; Domestic 4,902; Imports 597; Import share (%) 10.9; Of which Russia (%) ... - Total: Total 29,612; Domestic 18,814; Imports 10,798; Import share (%) 36.5; Of which Russia (%) 15.5 - Refugees and security: - More than 1.3 million refugees had arrived in Romania as of June; majority moved on to other countries. - Caring for remaining refugees will increase budgetary needs; initial assessment: moderate; EU support may be provided. - World Bank approved a loan of $500 million, partly to cover refugee-related costs. - Authorities intend to raise defense spending to 2½ percent of GDP from around 2 percent currently. - Risk premia and financial exposures: - Romania imposed sanctions on Russia and Belarus, including on the Central Bank of Russia and several Russian banks. - Sovereign risk premia: after a peak at the outbreak of the war, premia receded but remain higher than before; as of end-June the EMBIG spread is about 150 bps higher than at end-January. - NBR estimates resident banks’ exposure to domestic corporates with majority-Russian capital at 0.05 percent of their total exposures to the non-financial corporate sector. - NBR reported no loans by credit institutions to Russian or Ukrainian counterparties, and negligible deposits; no Russian bank operates in Romania. - Some parents of foreign-owned banks have operations in Russia; subsidiaries are standalone with sound prudential ratios. - Investment and indirect exposures: - Stock of inward direct investment from Russia and Ukraine in Romania is negligible. - Romania’s largest auto maker, Dacia, is indirectly exposed via its French parent group’s operations in Russia. - Outward direct investment to Russia and Ukraine was small; portfolio investment links appear negligible. - Tail risks: - A confluence of shocks (e.g., broader EU gas shut-offs, escalation in the Black Sea affecting ports, destabilization of Moldova triggering larger refugee flows) could be much more disruptive. ### Financial sector and monetary policy - Banking sector remains robust: strong capital, liquidity, and profitability positions post-pandemic. - NPL ratio has fallen below pre-pandemic levels; loan-loss provisioning remains much higher than the EU average. - Loan repayment moratorium ended in March 2021 (most loans repaid by end-2020); a new moratorium came into effect in July 2022. - Loan classification standards restored in 2021; bank dividend payout restrictions lifted. - Rapid credit growth over the past two years projected to continue in 2022. - Counter-cyclical capital buffer: currently at zero; increase to 0.5 percent set to become effective in October 2022. ### Box 2 — External Sector Assessment (summary) - Romania’s external position in 2021 was substantially weaker than level implied by fundamentals and desirable policies (Annex IV). - Cyclically-adjusted current account (CA) deficit: 6.7 percent of GDP in 2021. - CA gap estimated around -4.7 percent of GDP, implying an REER overvaluation of 13 percent. - Large residual (-4.9 percent of GDP) and possibly temporary pandemic-related factors imply uncertainty in the assessment. - External balance sheet: net international investment position broadly stable; liabilities concentrated in direct and other investment; relatively small share in debt securities. - Reserves increased in 2021, bolstered by higher EU grants; reserves are adequate by most metrics. - New grants and loans under the RRF available amount to over 13 percent of GDP up to 2026. - Romania remains vulnerable to a sharp tightening of global financial conditions. - Fiscal expansion may have had larger impact on CA than assumed in EBA model (coefficient used at 0.31); given high openness, fiscal expansion that shifted income toward households with lower propensity to save, and EU membership mitigating risk perceptions, a higher fiscal pass-through coefficient may be warranted. - Policy implication: fiscal consolidation together with gradually increasing exchange rate flexibility would be more effective in external adjustment. ### Fiscal developments - Fiscal deficit: 2020 deficit 9.8 percent of GDP; 2021 deficit 6.9 percent of GDP (lower than authorities’ target of 7.2 percent on a cash basis). - Higher-than-expected revenues in 2021 were broadly offset by higher expenditures largely due to COVID-related spending; higher nominal growth lowered deficit-to-GDP ratio. - Public debt (Maastricht definition) reached 49 percent of GDP (Annex V). ### External accounts - Current account deficit widened to 7 percent of GDP in 2021 from 5 percent in 2020; rolling four quarters CA at 7.7 percent of GDP in Q1 2022. - Merchandise trade balance led deterioration as imports rebounded while automotive exports were held back by supply-chain disruptions. - Net FDI inflows recovered strongly after pandemic-related plunge. - International reserves increased before the war, bolstered by 2021 SDR allocation (authorities intend to keep as reserves), prefinancing inflows from the RRF, and timing of two sovereign bond issuances. ### Outlook and risks - Near-term activity shaped by fallout from the war in Ukraine. - Growth projections: - 2021: 5.9 percent. - 2022: expected to moderate to around 4 percent. - Medium term: growth set to settle around 3½ percent, broadly in line with potential. - Spillovers from the war were modest in Q1 2022 but estimated to have increased significantly since then, leading to a substantial projected slowdown ahead. - Public investment projected to rise, supported by EU funds including new RRF resources, though absorption likely to remain moderate. *International Monetary Fund — Romania: “War in Ukraine—Spillovers to Romania”* ### 10. High and volatile energy and food ### 10. High and volatile energy and food ### Inflation outlook and projections - Energy and food prices are expected to remain the key drivers of headline inflation over the next two years. - Price caps already in place are projected to reduce the CPI by at least 2 ppts through March 2023 relative to a scenario without price caps. - After a decline into single digits by early 2023, removal of price caps is set to drive inflation up again to double digits (y/y) in April 2023. - Baseline projections (assuming continued monetary tightening at least through year-end): - Average annual inflation: 12½ percent in 2022. - Average annual inflation: persist around 10 percent in 2023, but ending 2023 at 7¾ percent y/y as base effects fade. - Core inflation: average 8¾ percent in 2022 and just below 7 percent in 2023, tempered by the expected growth slowdown. ### External sector and current account - The current account deficit is set to widen further, and remain large in the medium term. - Weakening external demand and continued supply chain disruptions are projected to hamper exports, more than offsetting a slowdown in import volume growth and a slight improvement in the terms of trade. - Over the medium term, with further fiscal adjustment and—near the end of the projection horizon—declining EU capital grants, the current account deficit is projected to narrow somewhat, though it would remain close to 6 percent of GDP. ### Risks to the outlook - Overall uncertainty is high and risks are tilted to the downside. Key downside risks include: - Further spillovers from Russia’s invasion of Ukraine. A broader Russian gas shut-off would raise energy prices further and reduce activity in European trade partners. - Further increase and/or volatility in energy and food prices could reduce real incomes and demand and raise costs for businesses; increased pass through to final prices may necessitate further domestic monetary tightening. - De-anchoring of inflation expectations in advanced economies leading to a concerted sharp tightening by global central banks, which may strain external and domestic financing more than anticipated. - New COVID variants may disrupt growth, especially given Romania’s still-low vaccination rate. - Domestic political constraints that may stall reforms and fiscal consolidation, risking a credit rating downgrade (mitigating factor: disbursements of EU funds under the RRF—based on reform milestones). - Upside scenario: Decisive reforms, including those envisaged under Romania’s National Recovery and Resilience Plan (NRRP), could raise growth above the baseline, ease financing conditions, and stabilize public debt. ### Buffers and policy scope - International reserves are broadly adequate, reinforced by the European Central Bank’s repo line, which has been extended to January 2023. - The fiscal liquidity buffer, targeted at four months of average gross financing requirements, remains in place. - Banks are well capitalized, highly liquid and funded by domestic deposits. ### Authorities’ views (summary) - The NBR agreed that, after the strong performance in Q1 2022, the economy was likely to slow as the impact of the war was beginning to be felt. - Officials noted uncertainty surrounding the inflation outlook due to price caps set to expire in March 2023; no decisions had been taken on how to phase them out. - Authorities acknowledged the risk of a wage-price spiral but noted wage increases negotiated in Q1 2022 were relatively moderate and indicators of labor market tightness were below previous peaks. - To manage prospective energy supply risks, authorities emphasized investments in new energy production capacities, diversification of supply sources, and expeditious exploitation of the Black Sea offshore gas reserves following passage of the Offshore Law for oil and gas. ### Short-term macroeconomic policy guidance - Macroeconomic management should respond flexibly to evolving circumstances. - If the outlook worsens significantly, prioritize timely, targeted, and temporary transfers to vulnerable households and viable firms. - Prepare fiscal consolidation and use available RRF funds efficiently. - Monetary policy should firmly aim at returning inflation to the target band and, over the medium term, allow for greater exchange rate flexibility. ### Fiscal policy: current stance and projections - Authorities’ 2022 budget targets a deficit of 5.8 percent of GDP (in line with the EU’s Excessive Deficit Procedure agreement), relying heavily on administrative efforts to boost revenue performance. - Targeted payments to vulnerable households and price caps for electricity and gas for most users have been implemented through March 2023 at levels prevailing before the surge in energy prices in late-2021. Budget cost (through reimbursements to energy suppliers) expected to be broadly offset by windfall profit taxes on energy producers and higher dividend payouts of state-owned enterprises (SOEs). - IMF staff projections and advice: - Staff project the 2022 fiscal deficit at 6¾ percent of GDP, and advised against further support measures. - Staff’s assumed revenue administration gains: ¼ percent of GDP in 2022 (more conservative than authorities’ expectations). - Advise avoiding cuts in planned investments to attain deficit targets. - Advise advancing revenue-enhancing measures envisaged for 2023. - Medium-term fiscal projections (based on current policies, lapse of temporary support measures, and administrative tax improvements): - Fiscal deficit projected to decline to 4½ percent of GDP by 2027. - Debt would continue to rise absent stronger measures. - Recommended additional measures: - Further tax policy measures amounting to about 2 percent of GDP should be implemented to reduce the deficit below 3 percent of GDP and stabilize public debt. ### Specific tax policy recommendations and revenue potential - Personal Income Tax (PIT): - The system is complicated by exemptions (construction, IT, recently introduced—agriculture), special treatments (including a low dividend tax), and loopholes (including through micro-enterprises). - Comprehensive reform could yield more than 1¼ percent of GDP. - Introducing progressivity for those with the highest incomes could generate additional revenue and mitigate high income inequality. - Value Added Tax (VAT): - Romania’s VAT efficiency is among the lowest in the EU. - Raising VAT efficiency to the EU average through base broadening, streamlining and additional administrative strengthening could yield 1½ percent of GDP. - Property Tax: - Reforms to broaden the base, make valuations more market-based, and simplify design could yield about ¼ percent of GDP. - Taxation of carbon emissions: - Once current price spike recedes, carbon taxes could be an additional source of revenue and contribute to the green transition; revenues could be used to reduce income taxes for lower-income earners or be redistributed evenly. - Note: Authorities announced a package of tax reform measures for 2023, but the announced measures fall well short of staff proposals. The announced measures are estimated to reduce the deficit by about ¾ percent of GDP and have been incorporated in the baseline projections. ### Expenditure-side priorities - Pension system reforms to ensure fiscal sustainability should be expeditiously implemented; current formula based on past inflation and real wage increases is regularly overridden by ad-hoc increases. - Public sector wage reform is a priority to ensure predictability, contain special bonuses, and reconcile retention of skilled labor with limited budget resources. - Public sector wage policies must consider potential impacts on economy-wide wages and inflation. ### EU funds and absorption (RRF) - Funds available through 2026 under the RRF total €29bn, more than the cohesion funds. - Staff projects absorption of RRF funds at 95 percent of available resources, higher than Romania’s typical absorption rate of about 85 percent. - Both grants and loans would finance public as well as private sector and SOE investment. - Authorities have formed a cabinet-level task force under the prime minister to ensure timely implementation of NRRP milestones and projects. ### Monetary and financial policies - Energy and food prices continue to feed into headline inflation; inflation expectations have risen above the target band. - To date, core inflation rise driven primarily by processed food; services prices remain relatively moderate. - Labor market: wage growth weaker and unemployment higher compared to pre-pandemic trends. - NBR’s wage Phillips curve specification indicates unemployment, labor productivity and other factors rather than inflation expectations have been main drivers of economy-wide wages so far, though rising inflation could change this pattern. - Monetary policy actions and guidance: - NBR has more than reversed the pandemic-era policy rate cuts. - Measured and accelerating policy rate increases were reinforced by tight liquidity management, effectively adding another 100 bps in transmission to money market rates. - With the war in Ukraine, the NBR resumed moderate government bond purchases to calm yields and augmented FX sales to stabilize the exchange rate and curb pass-through to inflation. - Going forward, further tightening is needed to guide inflation back toward the target band. Continuing the pace of recent policy rate increases through end-2022 should help prevent entrenchment of inflationary pressures. - Under the baseline, this would support a return of headline inflation within the target band by the second half of 2024. - Monetary policy must react nimbly; if longer-term inflation expectations rise while growth stays robust, accelerating tightening would be warranted to prevent a wage-price spiral. Conversely, faster normalization of prices for supply-constrained goods or a stronger reaction of core inflation to recent rate increases may allow smaller future policy rate steps. - High uncertainty underscores the importance of careful monitoring and continued clear communication. ### Exchange rate policy - Keeping the exchange rate stable against the euro has helped avoid fueling inflation and underpinned confidence in the domestic currency. - As external competitiveness has weakened, and to help absorb external shocks, exchange rate flexibility should be increased over time together with necessary fiscal consolidation. *Source: IMF staff report: "10. High and volatile energy and food" (Romania).* ### 28. Financial sector policies need to preserve the Romanian banking system’s soundness, ### Financial sector policies need to preserve the Romanian banking system’s soundness, while maintaining the flow of credit ### Financial sector assessment and immediate outlook - Private credit growth at 15.8 percent y/y in April has been strong. - Banks have enlarged their SME client base, and borrowers appear solid. - The increase in the countercyclical buffer in October is described as broadly appropriate. - With predominantly variable-interest loans, the rise in interest rates will put pressure on borrowers, but no serious repayment problems are anticipated. - The newly-announced reinstatement of the loan moratorium appears limited in scope, with a brief time window for application and narrow conditions for requesting a payment moratorium. - Banks’ strong capital positions enable them to set aside the necessary provisions. - Credit guarantee schemes, in particular for SMEs and for first-home mortgages, can be gradually phased out. ### AML/CFT and external risk considerations - Implementation is key to strengthen the AML/CFT framework. - Strengthening AML/CFT is important in view of the 5th round of the Moneyval assessment that is currently underway. - Strengthened AML/CFT is also important to continue to safeguard the financial sector from potential risk related to Russia, including sanctions evasion. ### Authorities’ views on monetary and financial policy - NBR officials agreed with staff’s assessment and recommendations. - The NBR confirmed that its monetary strategy remains focused on anchoring inflation expectations, while broadly keeping pace with the Central and Eastern European region and the global environment, and assured staff that the tightening cycle would continue. - The NBR emphasized the high degree of uncertainty and indicated it would react firmly should wage dynamics threaten to jeopardize the return of inflation and inflation expectations to the target band. - They emphasized the role of a stable exchange rate in maintaining confidence in the leu, but acknowledged that, once shocks were abating, the case for greater flexibility would be stronger. - The authorities concurred that stronger-than-expected growth momentum, with further rising credit growth, supported the case for the modest increase of the countercyclical capital buffer, but indicated that no further increases were planned. - The NBR accepted the government’s new loan moratorium as a safety net for borrowers during the war shocks, and expected only limited take-up. - The NBR considered that banks would be able to absorb associated provisions, given their strong financial positions. - They noted that the effects of rate hikes appeared manageable, as income growth continued and household debt service-to-income ratios had been capped by a macroprudential measure introduced with IMF assistance in 2019. ### Structural reforms, inequality, and the green transition - Strengthening public investment management is critical: - Authorities are encouraged to strengthen medium-term planning and the medium-term budget framework, develop a centralized coordination mechanism and a pipeline of appraised investment projects across sectors. - This would help Romania absorb more EU funding and use investment funds more efficiently, boost infrastructure and help implement the climate policies committed under the NRRP (Annex I). - Romania consumes less energy per capita than most EU countries, but investments required to meet NRRP climate targets are large and need to be executed without delay. Investments to strengthen energy security should also receive high priority. - Reducing regional inequalities requires better public investment management: - GDP per capita in the richest region (Bucureşti-Ilfov) is at 73 percent of the EU14 average, and 3.7 times that of the poorest region in Romania (Nord-Est), one of the highest differences in Europe (Selected Issues Paper). - Addressing large income gaps between regions calls for strengthening regional capacity and infrastructure to boost EU funds absorption and overall growth. - Reenergizing structural reforms and investments to raise productivity requires: - Expanding digitalization, strengthening the anti-corruption framework, improving the health and education systems. - Reforming SOEs by implementing good governance principles and an effective enforcement and monitoring mechanism, professional management, restructuring and increased private ownership. - Improving governance to reduce informality (and hence higher tax revenue) and reduced inequality. ### Staff appraisal — risks, fiscal stance, and policy recommendations - Near-term environment and risks: - Romania emerged from the COVID pandemic relatively unscathed but faces new headwinds despite strong performance in Q1 2022. - Romania’s vulnerability to the war in Ukraine is largely indirect, but spillovers are being felt: energy and food prices have been increasing sharply, and external demand is slowing due to lower growth in Europe. - Uncertainty and tighter financial conditions are affecting confidence and activity, and sovereign risk premia have risen substantially. - Key risks include the impact of a broader shut-off of Russian gas on the EU economy, even higher and more volatile energy and food prices, and further financial tightening, including for the sovereign. - Fiscal position and guidance: - Romania confronts near-term challenges from a weak fiscal position, though some buffers and policy scope to respond remain. - Absent a significant worsening of the outlook, further broad support measures should be avoided. - If adverse risks materialize, policy responses need to be carefully calibrated; support to vulnerable households needs to be timely, targeted, and temporary. - Fiscal policy needs a medium-term orientation to rebuild buffers, ensure predictability, and boost economic growth. - The NRRP includes milestones for putting in place new and sustainable medium-term policies; combined with the government’s commitment to reduce the fiscal deficit to sustainable levels below 3 percent of GDP, this offers an opportunity for anchoring policies. - On spending: setting pensions and public sector wages on a formula-based trajectory would help improve medium-term budgeting; strengthening health care and education can improve livelihoods and help moderate emigration. - On revenue: reforms should focus on the personal income tax by abolishing special treatments, exemptions, and loopholes; the recent tax package is welcome but more ambitious reform is needed to make the tax system more efficient and fair. - VAT efficiency should be boosted through further base broadening and streamlining. - Over the medium term, taxing carbon emissions would promote energy efficiency. - RRF and investment absorption: - Making the most of the large funds available under the RRF is a priority; key reforms to boost absorption of these funds have been identified and should be implemented without delay. - The RRF’s focus on digitalization can support strengthening revenue administration and jumpstart efforts to address climate change. - Monetary policy and exchange rate: - Monetary policy needs to stay nimble to firmly guide inflation back toward the NBR’s target. - Staff commends monetary authorities for accelerating interest rate increases and tighter liquidity management over the last 10 months, broadly in line with regional peers. - The pass-through of energy and food prices to core inflation continues to rise; policy rates will need to rise further to help prevent the entrenching of inflationary pressures. - Monetary policy should be ready to accelerate tightening if demand pressures are stronger than expected or inflation does not begin to converge to the NBR’s target; vigilance is needed to prevent the emergence of a wage-price spiral. - The exchange rate should gradually become more flexible: while a stable exchange rate against the euro avoids fueling inflation and underpins confidence in the leu, weakening external competitiveness and the rising current account deficit argue for a more flexible exchange rate that could—together with fiscal consolidation—help contain external imbalances and absorb potential future external shocks. - Banking system soundness and credit flow: - The soundness of the Romanian banking system is an asset that needs to be preserved while sustaining credit flow to the economy. - Banks’ strong prudential indicators provide a sound basis to support the economy. - With solid credit growth, the increase in the countercyclical capital buffer is timely, but caution is warranted going forward as the economic situation may deteriorate. - The renewed loan moratorium is likely to have only a limited impact on banks, given the short application window and circumscribed conditions for application. *Source: IMF staff report (content unit: 1rouea2022003).* ### 45. It is recommended that the next Article IV consultation be held on the standard 12- ### 1rouea2022003 - 45. It is recommended that the next Article IV consultation be held on the standard 12- ### Real Sector (Figure 2: Romania: Real Sector, 2012–22) - Romania has experienced a strong recovery from the pandemic, which has extended to Q1 2022. - Private consumption remained strong, while exports were disrupted by supply-chain issues. - Confidence is recovering but the war in Ukraine is taking its toll. - Retail sales have held up, but construction is falling due to increasing costs. - Services have been driving growth. - Real GDP Dynamics: Real GDP, 2000 prices (SA, billions of Lei); QOQ, percent change (SA, RHS); YOY, percent change (SA, RHS). - GDP Components Contribution: Exports, Imports, GFCF/Investment, Consumption, Inventory + discrepancy, GDP growth (NSA). - Confidence Indicators: Services confidence, Consumer confidence, Economic sentiment indicator, long-term average=100 (RHS). - Industrial Production, Retail Sales and Construction (SA, percent change, y-o-y): Retail sales, Industrial production, Construction. - GDP Growth Contribution by Industry: Agriculture, Industry, Construction, Service, Public, Statistical discrepancy, Net taxes on products. - Real GDP Growth (NSA, percent, y-o-y) compared: Romania, EA19, Germany. ### External Sector (Figure 3: Romania: External Sector, 2012–22) - Imports continue to rise more rapidly than exports. - The trade balance is driving the current account deterioration. - Capital inflows—from the EU—have increased. - The share of domestic-currency securities (government bonds) held by nonresident has declined. - The REER has broadly stabilized. - Reserves remain high. - Trade in Goods: Trade balance 12m; Exports (SA, RHS); Imports (SA, RHS) (Billions of Euros). - Current Account (Percent of GDP): Secondary income, Income balance, Services balance, Trade balance, Current account balance. - Capital and Financial Account (Percent of GDP): Other investment, Portfolio investment, FDI, Capital account (RHS). - Stock of RON Denominated Securities and Share of Non-resident Holdings: Share of non-resident holdings in percent 1/; Stock in percent of GDP. - Real Effective Exchange Rate, CPI (Index, 2010=100). - Gross International Reserves (Billions of Euros) and Reserves coverage 1/ (S-T Debt, RHS). - Note: 1/ Reserves coverage is based on end-of-year data. ### Labor Market (Figure 4: Romania: Labor Market, 2012–2022) - Unemployment is still above pre-pandemic levels. - Overall employment is stable, owing to public sector employment and services; manufacturing remains tepid. - Due to rising inflation, real wage growth remains subdued even as nominal wages continue to increase. - As the pandemic abates, labor productivity is rising. Cumulative wage increases still exceed productivity gains. - Unit labor costs in manufacturing have been on an upward trend. - Unemployment (Percent): Overall unemployment, Registered unemployment (SA). - Employment (Millions of people): Total employees in percent of labor force (RHS); Public employment; Manufacturing employment. - Real Wage Growth (Percent, y-o-y). - Average Gross Monthly Wage 1/ (Lei per person, thousand): Public wages, Private wages, Minimum wage. - Wage and Productivity, Economy-wide (SA, 2007Q1=100): Average gross monthly wage, Average net monthly wage, Output per employee. - ULC Manufacturing (2007=100) and Minimum wage (Thousands of Lei, RHS). - Note: 1/ Year 2018 reflects the upward adjustment of gross wages, including gross minimum wages, due to the implementation of the shift in social security contributions from employers to employees, which kept net wages and costs to employers unaffected. ### Monetary Sector (Figure 5: Romania: Monetary Sector, 2012–22) - Inflation has risen sharply. - Excess liquidity fell as monetary conditions were tightened, fostering higher market rates within the corridor. - Inflation expectations have risen across the region. - Real interest rates have declined due to surging inflation, despite policy rate hikes. - As RON interest rates have been rising, the gap with EUR-denominated instruments has widened. - Inflation Targets and Outcomes (Percent): Headline CPI inflation, Core inflation, Inflation target central point. - Excess Liquidity 1/ (Billions of Lei): Excess liquidity; Policy rate (RHS). - Consumer Price Expectations 2/ (regional comparison): Bulgaria, Czech Republic, Hungary, Poland, Romania, Euro Area. - Real Interest Rates (Percent) (regional comparison). - Interest Rates on RON Instruments (Percent): Deposits (New), Lending (New loans), Policy rate, Interbank rate. - Interest Rates, Differential Between RON and EUR Instruments (Percent): Lending (New loans), Deposits (New). - Notes: 1/ Stock of deposit in the NBR deposit facility (monthly average). 2/ Equals to the percentage of favorable answers minus the percentage of unfavorable answers in the survey on price trends over the next 12-month. ### Fiscal Operations (Figure 6: Romania: Fiscal Operations, 2012–23) - The fiscal deficit consolidation in 2021 as the pandemic recovery took hold is projected to stall in 2022. - Revenues in 2022 are expected to be boosted by grants, windfall taxes, and inflation. - While most pandemic support measures have expired, new support schemes, including for energy, raise spending in 2022. - The RRF adds to EU funds inflows, with prefinancing disbursements already received starting in 2021. - Large fiscal deficits in recent years have markedly raised government debt, albeit from relatively moderate levels. - Despite higher social assistance, the wage bill is projected to decline as a share of tax revenues (boosted by inflation). - Fiscal Balance (Percent of GDP) (Projected series). - Revenue (Percent of GDP): Revenue, Taxes (Incl. SSC) (Projected series). - Expenditure (Percent of GDP): Expenditure, Current expenditure, Wage bill (RHS) (Projected series). - Grants (Excluding direct EU agriculture payments, Percent of GDP) (Projected series). - Gross General Government Debt (Percent of GDP) (Projected series). - Wage Bill and Social Assistance (Percent of Tax revenue) (Projected series). ### Financial Sector (Figure 7: Romania: Financial Sector, 2012–21) - Private sector credit has expanded through the crises years. - The degree of euroization continues to fall. - Funding is solid, with retail deposits offering a dominant and stable source of bank liquidity. - Banks remain well-capitalized. - NPLs are trending down and bank profitability remains strong. - Total Credit 1/ (Billions of Lei): Total, Household, Corporate, Other. - FX Credit Ratio (Percent): Total, Household, Corporate, Other. - Deposit-to-Loan Ratio (Percent). - Capital Adequacy Ratio (Percent). - Non-performing Loans (Percent of total loans) and IFRS provisions ratio (RHS) 1/. - Profitability (Percent): Return on equity, Return on assets (RHS). - Note: 1/ In December 2015, the NBR moved from a national definition to an EBA methodology-based definition of NPL's. ### Financial Developments (Figure 8: Romania: Financial Developments, 2014–22) - Prior to a plunge induced by the war in Ukraine, Romania’s stock market had reached record highs. - The leu has been heavily stabilized compared to peers during recent shocks. - The PPI has surged more strongly in Romania, and on this basis, the real exchange rate has recently sharply appreciated. - Romania’s spread remains elevated relative to peers, and spiked recently with the outbreak of the war in Ukraine. - Romania's EMBIG spreads have shown a similar trajectory, albeit briefly narrowing after the ECB extended its repo line for non-euro area countries. - Interbank rates have risen rapidly, more than policy rates due to tight liquidity management, and are broadly in line with peers. - Equity Markets (Jan. 1, 2013 = 100) regional series. - National Currency per Euro (Jan. 1, 2013 = 100) regional series. - Real Effective Exchange Rates, PPI (2013 = 100) regional series. - CDS Spreads, 5-year (Basis points) regional series. - EMBIG Spreads (Basis point) regional series. - Interbank Offer Rates (3-months, percent) regional series. ### Selected Economic and Social Indicators (Table 1: Romania: Selected Economic and Social Indicators, 2016–23) - Output and prices: Real GDP (annual percent change) series: 2016: 4.7; 2017: 7.3; 2018: 4.5; 2019: 4.2; 2020: -3.7; 2021: 5.9; 2022 Est.: 4.0; 2023 Proj.: 3.4. - Domestic demand 1/: 2016: 4.9; 2017: 8.9; 2018: 5.9; 2019: 5.7; 2020: -2.1; 2021: 7.0; 2022 Est.: 5.7; 2023 Proj.: 4.2. - Consumer price index (CPI, average): 2016: -1.6; 2017: 1.3; 2018: 4.6; 2019: 3.8; 2020: 2.6; 2021: 5.0; 2022 Est.: 12.3; 2023 Proj.: 10.0. - Unemployment rate (average): 2016: 7.2; 2017: 6.1; 2018: 5.2; 2019: 4.9; 2020: 6.0; 2021: 5.6; 2022 Est.: 5.7; 2023 Proj.: 5.5. - Nominal wages, gross 2/ (annual percent change): 2016: 12.8; 2017: 14.8; 2018: 35.4; 2019: 13.0; 2020: 6.4; 2021: 7.1; 2022 Est.: 9.7; 2023 Proj.: 8.0. - Gross domestic investment 1/ (percent of GDP): 2016: 23.4; 2017: 23.4; 2018: 22.8; 2019: 23.6; 2020: 24.4; 2021: 25.9; 2022 Est.: 26.1; 2023 Proj.: 25.5. - Gross national savings (percent of GDP): 2016: 21.8; 2017: 20.3; 2018: 18.1; 2019: 18.7; 2020: 19.5; 2021: 18.9; 2022 Est.: 18.5; 2023 Proj.: 18.1. - General government finances (percent of GDP), 2016–2023 series: - Revenue: 2016: 28.9; 2017: 28.0; 2018: 29.2; 2019: 28.9; 2020: 28.8; 2021: 30.6; 2022 Est.: 31.4; 2023 Proj.: 30.6. - Expenditure: 2016: 31.3; 2017: 30.9; 2018: 32.2; 2019: 33.8; 2020: 36.8; 2021: 37.5; 2022 Est.: 38.2; 2023 Proj.: 35.7. - Fiscal balance: 2016: -2.4; 2017: -3.0; 2018: -3.0; 2019: -4.9; 2020: -9.8; 2021: -6.9; 2022 Est.: -6.8; 2023 Proj.: -5.1. - Gross public debt (including guarantees) (percent of GDP): 2016: 39.0; 2017: 36.8; 2018: 36.5; 2019: 36.8; 2020: 49.6; 2021: 51.4; 2022 Est.: 51.7; 2023 Proj.: 52.0. - Balance of payments highlights: Current account balance (percent of GDP) series: 2016: -1.6; 2017: -3.1; 2018: -4.6; 2019: -4.9; 2020: -5.0; 2021: -7.0; 2022 Est.: -7.7; 2023 Proj.: -7.4. - Memorandum items: - Nominal GDP (in bn RON): 2016: 763.7; 2017: 857.9; 2018: 951.7; 2019: 1,059.0; 2020: 1,058.9; 2021: 1,181.9; 2022 Est.: 1,352.0; 2023 Proj.: 1,490.6. - Potential output growth series provided (e.g., 2018: 3.7; 2019: 3.7; 2020: 1.5; 2021: 4.1; etc.). - Social indicators: GDP per capita: US$14,667 (2021); GDP per capita, PPP: current international $32,116 (2020); People at risk of poverty or social exclusion: 31.2% (2019). - Notes: 1/ Including potential statistical uncertainty related to large inventory contribution in 2018 and 2021. 4/ Fiscal balance (cash basis) adjusted for the automatic effects of the business cycle and one-off effects. 2/ Year 2018 reflects the upward adjustment of gross wages due to the implementation of the shift in social security contributions from employers to employees. 3/ General government finances refer to cash data. ### Medium-Term Macroeconomic Framework (Table 2: Current Policies, 2018–27) - Real GDP (annual percent change) projections: 2018 Est.: 4.5; 2019: 4.2; 2020: -3.7; 2021: 5.9; 2022: 4.0; 2023: 3.4; 2024–2027 Proj.: 3.8, 3.5, 3.5, 3.5 respectively. - Consumer price index (CPI, average) projections: 2018: 4.6; 2019: 3.8; 2020: 2.6; 2021: 5.0; 2022: 12.3; 2023: 10.0; 2024: 3.6; 2025: 3.0; 2026: 2.6; 2027: 2.5. - Gross national saving (percent of GDP) projections: 2018: 18.1; 2019: 18.7; 2020: 19.5; 2021: 18.1; 2022: 18.1; 2023: 18.3; 2024–2027 around 18.3–18.5. - Gross domestic investment (percent of GDP) projections: 2018: 22.8; 2019: 23.6; 2020: 24.4; 2021: 25.9; 2022: 26.1; 2023: 25.5; 2024–2027: 25.2, 25.2, 24.6, 24.3. - General government (percent of GDP) projections: Revenue series for 2018–2027 (e.g., 2018: 29.2; 2019: 28.9; 2020: 28.8; 2021: 30.6; 2022: 31.4; 2023: 30.6; 2024–2027: 31.7, 31.3, 31.0, 31.0). - Fiscal balance projections: -3.0 (2018), -4.9 (2019), -9.8 (2020), -6.9 (2021), -6.8 (2022), -5.1 (2023), then -5.1, -5.1, -5.0, -4.5 (2024–2027). - Gross general government debt (including guarantees) projections (percent of GDP): 2018: 36.5; 2019: 36.8; 2020: 49.6; 2021: 51.4; 2022: 49.8; 2023: 51.2; 2024–2027: 52.8, 54.8, 56.5, 57.7. - Monetary aggregates and balance of payments projections included (e.g., Current account: -4.6 (2018) to -5.9 (2027)). - Memorandum items: Gross international reserves (in billions of euros) series: 2018: 36.8; 2019: 37.5; 2020: 42.5; 2021: 45.8; 2022: 42.4; 2023: 39.8; etc. - Notes on data: Investment and domestic demand series flagged for potential statistical distortion related to large inventory contributions in 2018 and 2021. ### Balance of Payments (Table 3: Romania: Balance of Payments, 2018–27) - Current account (percent of GDP) series: 2018: -4.6; 2019: -4.9; 2020: -5.0; 2021: -7.0; 2022: -7.7; 2023: -7.4; 2024–2027: -6.9, -6.5, -6.1, -5.9. - Merchandise trade balance (percent of GDP) series: 2018: -7.5; 2019: -8.0; 2020: -8.7; 2021: -9.6; 2022: -10.0; 2023: -10.0; projections through 2027. - Exports (f.o.b, percent of GDP) series: 2018: 30.2; 2019: 28.3; 2020: 26.3; 2021: 29.2; 2022: 29.8; 2023: 29.0; 2024–2027 range up to 31.3. - Imports (f.o.b, percent of GDP) series: 2018: 37.7; 2019: 36.3; 2020: 34.9; 2021: 38.9; 2022: 38.9; 2023: 39.0; 2024–2027 up to 40.1. - Services balance, Primary income, Secondary income, Capital account and Financial account series provided with projections. - Financial account balance (percent of GDP) series: -2.5 (2018), -2.3 (2019), -3.6 (2020), -5.4 (2021), -6.0 (2022), -5.9 (2023), then improving to -5.2, -4.3, -4.6, -4.9 (2024–2027). - Balance sheet: Int'l investment position, net (percent of GDP) series: -43.7 (2018) to -54.0 (2027 projected). - Gross external debt (percent of GDP) series: 48.8 (2018), 49.2 (2019), 57.9 (2021), 55.9 (2022), rising toward 54.7 (2027). - Memorandum items include international reserves (in billions of euros), export/import value and volume percent changes, REER changes, and exchange rate (lei/€, average). ### Fiscal Accounts (Tables 4a and 4b: Romania: Fiscal Accounts, 2018–2027) - General government operations (percent of GDP) summary: - Revenue: 2018: 29.2; 2019: 28.9; 2020: 28.8; 2021: 30.6; 2022: 31.4; 2023: 30.6; 2024–2027: 30.9, 31.7, 31.3, 31.0. - Revenue excl. grants: 2018: 28.2; 2019: 27.9; 2020: 27.3; 2021: 28.9; 2022: 29.4; 2023: 29.3; projections through 2027. - Tax revenue: 2018: 25.3; 2019: 25.3; 2020: 24.9; 2021: 26.6; 2022: 27.0; 2023: 27.0; 2024–2027: around 27.4–27.8. - Expenditure: 2018: 32.2; 2019: 33.8; 2020: 38.6; 2021: 37.5; 2022: 38.2; 2023: 35.7; 2024–2027: 36.0, 36.9, 36.3, 35.5. - Net lending/borrowing (fiscal balance): 2018: -3.0; 2019: -4.9; 2020: -9.8; 2021: -6.9; 2022: -6.8; 2023: -5.1; 2024–2027: -5.1, -5.1, -5.0, -4.5. - Primary balance (percent of GDP): 2018: -1.7; 2019: -3.8; 2020: -8.5; 2021: -5.4; 2022: -5.2; 2023: -3.4; projections improving thereafter. - Gross debt (authorities' definition) (percent of GDP): 2018: 36.5; 2019: 36.8; 2020: 49.6; 2021: 51.4; 2022: 51.7; 2023: 52.0; 2024–2027 rising to 57.7. - Fiscal accounts in levels (billions of lei) provided in Table 4b with revenue and expenditure series (e.g., Revenue 2018: 277.5 bn lei; 2019: 305.9; 2020: 305.6; 2021: 361.6; 2022: 424.5; 2023: 454.8; 2024: 497.7; projections to 2027). - Financing composition (Domestic, External) and memorandum items included. - Notes: 1/ Cash basis. The general government is composed of the central and local governments, the Social Security Fund, and the Road Fund Company. 2/ Excludes direct EU agricultural payments. 3/ From Resilience and Recovery Fund. 4/ Includes guarantees. ### Monetary Survey (Table 5: Romania: Monetary Survey, 2015–22) - Net foreign assets (in millions of lei): series showing increases (e.g., 2016: 108,650; 2017: 144,983; 2018: 158,989; 2019: 166,578; 2020: 181,847; 2021: 236,505; 2022 Proj.: 240,561). - In millions of euros: 2016: 24,014; 2017: 31,927; 2018: 34,120; 2019: 35,716; 2020: 38,049; 2021: 48,570; 2022 Proj.: 48,617; 2023 Proj.: 54,615. - Net domestic assets and components: General government credit, net; Private sector credit; Other. - Broad Money (M3) series (in millions of lei): 2016: 286,256; 2017: 314,135; 2018: 350,112; 2019: 381,075; 2020: 422,629; 2021: 487,450; 2022 Proj.: 564,424; 2023 Proj.: 649,652. - Narrow money (M1) and its components (currency in circulation; overnight deposits) series provided. - Reserve money (levels and contributions) and annual percent change of broad money and components (e.g., Broad money (M3) annual percent change: 2016: 9.3; 2017: 9.7; 2018: 11.5; 2019: 8.8; 2020: 10.9; 2021: 15.3; 2022 Proj.: 15.8; 2023 Proj.: 15.1). - Memorandum items: CPI inflation, eop: e.g., 2021: 8.2; 2022: 12.6; NBR inflation target band: 1.5 - 3.5; Interest rates (percent), end of period policy interest rate series (e.g., 2016: 1.75; 2017: 1.75; 2018: 1.75; 2019: 2.50; 2020: 2.50; 2021: 1.50; 2022: 1.75). - Share of foreign currency private deposits and loans series included (e.g., Share of foreign currency private deposits 33.3, 32.3, 32.8, 34.2, 35.4, 36.1, 35.3). ### Financial Soundness Indicators (Table 6: Romania: Financial Soundness Indicators, 2013–21) - Capital adequacy: Capital to risk-weighted assets series (2013: 15.5; 2014: 17.6; 2015: 19.2; 2016: 19.7; 2017: 20.0; 2018: 20.7; 2019: 22.0; 2020: 25.1; 2021: 23.3). - Tier 1 capital to risk-weighted assets 1/ series (e.g., 2013: 14.1; 2014: 14.6; 2015: 16.4; 2016: 17.5; 2017: 18.0; 2018: 18.6; 2019: 20.0; 2020: 23.3; 2021: 20.9). - Asset quality: Nonperforming loans to total gross loans 2/ series (2013: 21.9; 2014: 20.7; 2015: 13.5; 2016: 9.6; 2017: 6.4; 2018: 5.0; 2019: 4.4; 2020: 3.8; 2021: 3.4). - IFRS Provisions for NPLs / NPLs series: 55.6–66.1 range across years. - Earnings and profitability: Return on assets and Return on equity series with notable volatility (e.g., Return on equity: -12.5 in 2014; 11.8 in 2015; 10.4 in 2016; 12.5 in 2017; 14.6 in 2018; 12.2 in 2019; 8.7 in 2020; 13.3 in 2021). - Liquidity: Liquid assets to total assets and to short-term liabilities series (e.g., Liquid assets to total assets 2013: 56.2; 2014: 57.4; 2015: 54.1; 2016: 53.4; 2017: 53.4; 2018: 52.6; 2019: 53.2; 2020: 55.5; 2021: 15.2—note structural indicator definitions). - Foreign exchange risk indicators: Net open position in foreign exchange (percent of capital) and foreign-currency-denominated loans to total loans series (e.g., 2013: 60.9; 2014: 56.2; 2015: 49.3; 2016: 42.8; 2017: 37.2; 2018: 34.0; 2019: 32.4; 2020: 30.5; 2021: 27.6). - Encouraged indicators: Leverage ratio and loan-to-deposit ratios presented (e.g., Leverage ratio 2013: 7.9; 2014: 7.4; 2015: 8.2; 2016: 8.9; 2017: 8.9; 2018: 9.3; 2019: 10.2; 2020: 10.3; 2021: 8.6). - Structural indicators note: Number of banks: 34; Number of foreign-owned subsidiaries/branches: 21/8. - Notes: 1/ For 2010, market and operational risk are not used in compiling risk weighted assets. 2/ In December 2015, the NBR moved from a national definition to an EBA methodology-based definition of NPL's. 3/ Return on equity is calculated as net profit/loss to average own capital. 4/ Liquid assets = balance sheet assets and off balance sheets items with residual maturity of up to 3 months. 5/ Short term liabilities = balance sheet liabilities and off balance sheet items with residual maturity of up to 3 months. 6/ Tier 1 capital to average assets. *Source: IMF staff report figures and tables as presented in the chapter content unit.* ### Annex I. Climate Change ### Annex I. Climate Change ### A. Background - Romania has committed to achieve net zero greenhouse gas (GHG) emissions by 2050, and by 2030 a reduction compared to 1990 levels by 55 percent. - Romania consumes less energy per capita than most EU member states, broadly in line with its relatively low-income level. - Energy efficiency has improved substantially—more so than in most EU member states, though Romania still lags behind EU14 peers. - The share of renewables has increased, but progress has stalled in recent years. - A significant contribution of nuclear power to electricity generation, combined with lower energy consumption and higher efficiency, implies that GHG emissions are relatively low. - Coal-fired power generation and coal mining are significant in two regions, concentrating the social impact of any phase-out. ### B. Outlook — targets, plans, and costs - National Energy and Climate Plan (NECP) - Plans a significant expansion of power generating capacity: 32 percent compared to 2020 levels, largely with renewables (and nuclear). - Coal-fired power generation is to be reduced by about one-third and replaced by new gas-fired plants. - Projected increases in generation and transmission efficiency; measures planned to reduce energy demand (e.g., support for building insulation). - Heating subsidies for vulnerable households will be continued to combat energy poverty. - Overall cost of implementing the NECP is estimated at €150 billion over ten years (annually around 6¾ percent of 2019 GDP), to be financed through EU programs and revenues from the European emissions trading system. - National Recovery and Resilience Plan (NRRP) - Supplements and strengthens the NECP. - Commits to reaching 34 percent of renewables by 2030, in line with the EU target. - Commits to phase out coal mining and coal-fired power generation by 2032. - Commits to accelerate decarbonization of the transport sectors and develop a hydrogen strategy. - Allocates 41 percent of total NRRP spending, or €12 billion, toward Romania’s green transition in rail and urban infrastructure, clean energy production, energy efficiency of buildings, and re- and afforestation. - Notes that the EU’s RePowerEU plan has raised EU-wide energy savings and renewable energy targets further, potentially implying additional investments in network infrastructure. - Social and regional considerations - Phasing out coal will be a challenge because coal mining is geographically concentrated where other carbon-intensive industries are located, implying concentrated social impacts. - The phase-out will allow full access to the EU’s Just Transition fund to diversify regional economies and cushion social impacts. - Role of prices and carbon taxation - Outside the EU’s emissions trading system, few price signals are planned at this stage to encourage switching to low- or no-emission fuels, apart from subsidies for electric cars and road pricing. - A bolder policy that taxes carbon emissions across the board and redistributes the proceeds evenly would alter relative prices for both consumers and producers, and leave lower income households (which tend to consume less energy than richer ones) better off. - Illustrative carbon tax scenario: a carbon tax of €10 per ton introduced in 2023 and rising to €40 per ton by 2030 that is evenly redistributed across the population would result in a net benefit for people in the lower half of the income distribution. - Note on energy poverty: more than 20 percent of households are in the lowest consumption band for electricity, and almost one-quarter are in the lowest consumption band for gas, much higher percentages than in most other EU member states. *Source: Annex I. Climate Change (from the provided IMF content).* ### Annex IV. External Sector Assessment ### Annex IV. External Sector Assessment ### Overall Assessment - The external position of Romania in 2021 was substantially weaker than the level implied by fundamentals and desirable policies. - The current account deficit widened to 7 percent of GDP in 2021 and is projected to expand further in 2022, suggesting continued external imbalances and exchange rate overvaluation. - Staff assesses the current account gap to be around -4.7 percent of GDP, implying a REER overvaluation of 13 percent, although the magnitude of this imbalance is subject to considerable uncertainty given the large residual and possibly temporary factors related to the COVID-19 pandemic. - Reserves increased further in 2021 and are assessed to be adequate according to most metrics. ### Potential Policy Responses - Make a credible medium-term commitment to fiscal consolidation once the current crisis has passed. - Boost the country’s capacity to absorb EU funds. - Consider greater currency flexibility as part of the policy mix to address a persistent currency overvaluation and to maintain reserve coverage. - Implement structural reforms to boost productivity and competitiveness, while conserving adequate fiscal space for further investments in infrastructure and human capital. ### Foreign Assets and Liabilities: Position and Trajectory - NIIP improved slightly in 2021 to -45.6 percent of GDP on a strong growth rebound. - Increase in nominal liabilities in 2021 driven mostly by a strong increase in inward direct investment; external assets grew on moderate accumulation in direct and portfolio investment and reserve assets. - FDI accounts for over half of Romania’s external liabilities (52 percent); debt securities account for 24 percent. - Reserves make up almost half of external assets, with other investment and FDI accounting for most of the rest. - The NIIP is projected to decline again in 2022 as a share of GDP on a slowdown in growth and increased inflows of direct and foreign investment. - Assessment: External balance sheet does not appear to be a major source of risk for external sustainability; external liabilities concentrated in direct and other investment with a relatively small share in debt securities. - Vulnerabilities: Romania remains vulnerable to a tightening in global financial conditions as gross market borrowing needs—while declining in terms of GDP—remain elevated, with the NIIP declining further to -53 percent of GDP by 2027. - 2021 (% GDP) summary figures: - NIIP: -46 - Gross Assets: 40 - Debt Assets: 2 - Gross Liab.: 86 - Debt Liab.: 26 ### Current Account - Background: - CA deficit grew to 7 percent of GDP in 2021, continuing a persistent widening over the past several years. - An increase in the goods deficit accounted for two-thirds of this deterioration, as a surge in imports more than offset 20 percent growth in exports in the pandemic recovery. - Services and income balances also declined. - CA deficit projected to widen further in 2022 due to the shock triggered by the war in Ukraine before improving gradually in the medium term on a recovery in the services balance and slower import growth. - Assessment: - Romania added in 2022 to the standard External Balance Model covering 2021, replacing previous EBA-Lite coverage. - EBA CA model estimated norm -1.9 percent of GDP after cyclical adjustments. - Actual CA deficit in 2021 was 6.7 percent of GDP after cyclical adjustments, including COVID-related effects, implying a CA gap of -4.7 percent of GDP. - Residual is very large at -4.9 percent of GDP, implying high uncertainty about drivers of CA and extent of misalignment. - Increasing inflow of EU grants through the capital account will augment the CA deficit without entailing new liabilities but is not incorporated in the CA norm. - External Sustainability (ES) approach of the EBA finds a CA gap of -3.4 percent of GDP. - EBA model key numbers (2021): - CA-Actua l-7.0 - Cyclically adjusted-6.7 - Adjusted CA norm-1.9 - CA Ga p-4.7 - Relative policy gap0.2 - Residual-4.9 - Elasticity0.36 - REER Ga p (%)13.1 ### Real Exchange Rate - Background: - CPI-based REER appreciated by 0.9 percent in 2021. - GDP deflator-based measure appreciated by 1 percent in 2021. - Unit labor costs measure fell by 0.9 percent in 2021. - Leu-euro exchange rate relatively stable over the past several years; REER volatility in 2021 similar to most comparable countries. - Assessment: - EBA CA model implies a REER overvaluation of about 13 percent in 2021 (applying an estimated elasticity of 0.36). - EBA REER index (1.3 percent) and level (-29.7 percent) methodologies subject to measurement uncertainty, driven by large residuals, and do not appear to capture Romania-specific factors well. - Staff assesses the REER to be overvalued by 13 percent. ### Capital and Financial Accounts: Flows and Policy Measures - Background: - Capital account recorded inflows of 2.2 percent of GDP in 2021, the largest inflows as a share of GDP since 2016, primarily reflecting an increase in EU grants. - Net FDI inflows reached 3 percent of GDP in 2021—the largest inflows since 2009—after a sharp fall in 2020. - Portfolio inflows fell to 1.2 percent of GDP in 2021 from 6.3 percent of GDP in 2020. - There are no restrictions on the capital and financial accounts. - Assessment: - Capital account inflows expected to continue to increase as EU funded projects ramp up, including sizable resources under Next Generation EU (NGEU) which has a total envelope of 9 percent of GDP over the next 6 years. - Scope for higher absorption of large EU funds in the 2021-27 multi-annual EU budget for Romania. - FDI inflows expected to remain strong as pandemic-related uncertainty abates, but war in Ukraine adds new uncertainty; medium-term prospects unclear due to poor infrastructure, rising labor costs and remaining policy uncertainty. - Portfolio investment flows into sovereign bonds may need to continue to be sizeable given only gradual fiscal consolidation, but FDI inflows and generous EU funds are projected to finance most of Romania’s CA deficit. - Vulnerability to reversals moderated as non-resident local currency holdings of government bonds have declined to approach 15 percent of total stock of bonds (below the 20 percent historical average and much lower than in CEE peers). ### FX Intervention and Reserves Level - Background: - Romania’s de facto exchange rate arrangement classified as crawl-like since August 2019. - Reserves were steady in dollar terms after a sharp increase in 2020, reflecting in part the appreciation of the dollar in 2021. - Gross international reserves stood at 19.1 percent of GDP in 2021. - Reserves could cover about 4.2 months of prospective imports. - Reserves could cover about 40 percent of M2 and 86 percent of short-term debt by residual maturity. - Assessment: - Reserves are assessed to be adequate. - Romania’s reserve coverage is around 98 percent of the Fund’s reserve-adequacy metric for emerging markets with a de-facto ‘fixed’ exchange rate regime. - Reserve adequacy would be above 135 percent of the ARA metric if a floating exchange rate regime were assumed and are adequate by most other standard metrics. *Annex IV. External Sector Assessment (1rouea2022003).* ### Annex V. Debt Sustainability Analysis ### Annex V. Debt Sustainability Analysis ### Public debt: context and baseline projections - Context: - Public debt rose from around 36 percent of GDP through 2019 to 51 percent of GDP by 2021 following the COVID shock. - Fiscal deficits are projected to remain high due to large past structural spending increases with no commensurate revenue measures. - Baseline projections: - Primary deficit: 5.4 percent of GDP in 2021; forecast to be 5.2 percent of GDP in 2022 and decline gradually to 2¾ percent of GDP by 2027. - Gross public debt (including guarantees): projected to rise to 58 percent of GDP by 2027. - Gross financing needs: projected to average 11¼ percent of GDP. - Key balance-sheet features: - 54 percent of public debt is denominated in or linked to foreign currencies. - A significant share of projected external debt accumulation is from official creditors through the NextGen EU program. ### Public debt: risks and stress tests - Risks from market perception and currency composition: - With 54 percent of debt in or linked to foreign currencies, financing is vulnerable to changes in market perceptions. - NextGen EU program financing mitigates some market vulnerabilities. - Stress test outcomes (impact on gross nominal public debt, percent of GDP, by 2027): - Real growth shock: raises debt-to-GDP by 7 percentage points to 65 percent of GDP by 2027. - Combined fiscal-macro shock: raises debt-to-GDP by another 8 percentage points to 73 percent of GDP by 2027. - Shocks to the primary balance, real interest rates, or the real exchange rate individually lead to only marginally higher debt paths. - Baseline and identified debt-creating flows (selected values from Table/Figure): - Nominal gross public debt: 37.8 (2020), 49.6 (2021), 51.4 (2022), 51.7 (2023), 52.3 (2024), 53.7 (2025), 55.3 (2026), 57.0 (2027), 58.2 (label in figure). - Public gross financing needs: 9.9 (2020), 14.2 (2021), 11.2 (2022), then 12.8, 11.9, 11.5, 10.5, 10.9, 10.2 (through 2027 as shown). - Change in gross public sector debt (cumulative): 0.7 (2020), 12.8 (2021), 1.7 (2022), 0.4, 0.6, 1.4, 1.5, 1.7, 1.2 cumulative 6.8 (to 2027). - Primary deficit (identified flow): 1.6 (2020), 8.5 (2021), 5.4 (2022), 5.2 (2023), 3.7 (2024), 3.5 (2025), 3.4 (2026), 3.2 (2027); cumulative 21.7. - Primary (noninterest) revenue and grants: 30.6 (2020), 28.8 (2021), 30.6 (2022), 31.3 (2023), 30.3 (2024), 30.7 (2025), 31.7 (2026), 31.2 (2027). - Primary (noninterest) expenditure: 32.2 (2020), 37.3 (2021), 36.0 (2022), 36.6 (2023), 34.0 (2024), 34.2 (2025), 35.0 (2026), 34.4 (2027). ### External debt: context, baseline, and stress tests - Context and recent levels: - External debt around 50 percent of GDP through 2019, peaked at 58 percent in 2020 as GDP shrank, at 56 percent of GDP currently. - Gross external financing requirement currently 28 percent (of GDP). - Baseline projections and financing composition: - Current account deficit: 7 percent in 2021, projected to decline only moderately to just under 6 percent in 2027. - A significant share of the current account is financed by direct investment and capital transfers (including EU capital transfers). - Loans under the EU’s NextGen EU program provide favorable financing going forward. - External debt is expected to remain close to current levels through the projection horizon. - Stress test outcomes (external debt-to-GDP): - Most standardized shocks produce marginal or modest increases, up to a maximum of 62 percent of GDP in a current account shock. - A real depreciation shock of 30 percent would increase the external debt-to-GDP ratio by about 30 percentage points to 84 percent of GDP. ### External Debt Sustainability Framework (selected table highlights) - Baseline external debt-to-GDP: 51.9 (2017), 48.8 (2018), 49.2 (2019), 57.9 (2020), 55.9 (2021), 52.2 (2022), 51.0 (2023), 51.5 (2024), 52.3 (2025), 53.5 (2026), 54.7 (2027). - Current account deficit, excluding interest payments: 1.9 (2017), 3.6 (2018), 3.8 (2019), 4.0 (2020), 6.1 (2021), 6.6 (2022), 6.3 (2023), 5.8 (2024), 5.4 (2025), 5.0 (2026), 4.8 (2027). - Net non-debt creating capital inflows (negative values): -1.9 (2017), -1.9 (2018), -1.2 (2019), -1.4 (2020), -1.8 (2021), -1.9 (2022), -2.1 (2023), -2.1 (2024), -2.3 (2025), -2.3 (2026), -2.3 (2027). - Gross external financing need (in percent of GDP): 25.4 (2017), 27.3 (2018), 25.9 (2019), 27.8 (2020), 27.4 (2021), (additional projections shown in table up to 25.8 for 2027). ### Realism of baseline assumptions and historical performance (high-level diagnostics) - Forecast track record (2011–2019): - Real GDP growth forecast error: median 0.98 (percent), Romania percentile rank 92%. - Primary balance forecast error: median -0.43 (percent of GDP), Romania percentile rank 36%. - Inflation (deflator) forecast error: median -0.16 (percent), Romania percentile rank 54%. - Assessing projected fiscal adjustment: - Romania’s 3-year average level of cyclically-adjusted primary balance (CAPB) has a percentile rank of 98% (indicating a relatively high CAPB level historically). - Romania’s 3-year CAPB adjustment percentile rank is 17%. ### DSA risk assessment and heat map indicators (2021 indicators, selected) - Debt profile vulnerabilities and benchmarks (as reported): - Gross financing needs benchmark: 15 percent of GDP (green if not exceeded). - Public debt in foreign currency: 54 percent (noted as a vulnerability vis-à-vis risk-assessment benchmarks). - EMBIG (average over last 3 months, 23-Mar-22 through 21-Jun-22): 238 basis points reported in figure. - External financing requirement: 12 (in percent of GDP) reported in figure. - Public debt held by non-residents: 48 percent (in percent of total) noted in figure. ### Policy implications and recommendations (drawn from analysis) - Fiscal policy and consolidation: - Fiscal consolidation is necessary to stabilize public debt; without further consolidation, public debt is projected to rise throughout the projection horizon. - Revenue measures and expenditure restraint are needed to lower the primary deficit from 5.2 percent of GDP (2022 baseline) toward 2¾ percent of GDP by 2027. - Tax administration reform and specific revenue measures are part of the baseline adjustment. - External financing and EU funds: - Continued absorption of EU funds (including NextGen EU financing) is important for financing large deficits and mitigating external vulnerability. - Maintaining high absorption rates for structural funds and meeting NRRP milestones supports financing at favorable conditions. - Monetary and financial stability: - Monetary tightening is warranted to anchor inflationary expectations; the National Bank of Romania started tightening in September 2021, raising the policy rate from 1.25 percent to 5.5 percent. - Vigilance on market perceptions is needed given 54 percent of public debt linked to foreign currencies and increased spreads (noted increase in spreads by more than 200 basis points since the war in Ukraine began). - Structural reforms: - Strengthen tax administration (ANAF reforms, VAT compliance) and implement tax policy measures to improve revenue mobilization. - Advance public investment management and reforms tied to NRRP to support growth and absorption of capital transfers. - Contingency planning: - Prepare for adverse scenarios identified by stress tests (notably severe growth shocks and combined fiscal-macro shocks) to limit debt escalation to the stress-test outcomes (65 percent under growth shock; 73 percent under combined shock by 2027). *Source: Annex V. Debt Sustainability Analysis, IMF staff report (Romania).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1rouea2022003.pdf_