## 1. Pass-Through from Wages to Inflation

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### Context and recent developments
- Romania has weathered shocks from the pandemic and Russia’s war in Ukraine relatively well; HICP inflation peaked at lower levels than regional EU peers.
- GDP per capita (in purchasing power standard terms) reached 74 percent of the Euro Area average, up from 40 percent in 2007.
- Growth:
  - 2022: 4.7 percent (supported by consumption and private and public investment).
  - 2023H1: around 1.9 percent y/y (slower consumption, subdued external demand; investment accelerated).
  - Output gap: estimated to turn slightly negative in 2023.
- Inflation:
  - CPI inflation peaked at 16.8 percent y/y in November 2022 and fell to 8.8 percent y/y in September 2023.
  - Core inflation peaked at 15.1 percent y/y in February 2023.
  - Two-year ahead inflation expectations have declined but remain slightly above the NBR’s tolerance band of ±1 percent around the target of 2.5 percent.
  - Electricity and gas price caps expire in March 2025; currently only partially binding.
- Fiscal and external balances:
  - Fiscal deficit (cash based): 2022 fell to 5.8 percent of GDP (after 6.7 percent in 2021); consolidation stalled in 2023 (deficit 3.6 percent of GDP in first nine months versus 3.0 percent last year).
  - Current account deficit widened to 9.3 percent of GDP in 2022; declined to 6.8 percent of GDP in first two quarters of 2023.
  - EBA estimates indicate an overvaluation of 17 percent in 2022 (compared to 10 percent a year earlier).
- Financial sector: banking system remains robust; nominal credit growth decelerated since mid-2022 and real credit growth turned negative; household and corporate debt low relative to peers.
- Political: grand coalition (PSD and PNL) since November 2021; Prime Minister switched to PSD in June 2023; multiple elections in 2024.

### Outlook and key projections
- Growth projections:
  - 2023: projected to weaken to 2¼ percent.
  - 2024: forecast to recover to around 2¾ percent (stronger consumption driven by rising real wages and external demand, partially countered by fiscal consolidation).
  - Medium term: potential growth rate of 3¾ percent.
- Inflation projections:
  - CPI inflation is projected to remain outside the NBR’s target band into 2025Q1.
  - Headline inflation expected to return gradually to target band by 2025Q1.
  - Core inflation expected to reach single digits only in 2023Q4 given double-digit wage increases in 2023 outpacing headline inflation.
- Fiscal projections:
  - Staff project the 2023 deficit at 6 percent of GDP (well above the target of 4.4 percent agreed with the European Commission).
  - Authorities’ September 2023 fiscal package: full effect at start of 2024, expected to improve public finances by about 1 percent of GDP, resulting in a deficit forecast just above 5 percent of GDP in 2024.
  - Current account: projected to narrow somewhat over the medium term but remain around 6 percent of GDP.

### Pass-through from wages to prices — main findings and evidence
- Mechanisms emphasized:
  - Transmission shaped by (i) impact of wages on cost of production, (ii) pass-through from producer prices to consumer prices, and (iii) relative weight of goods and services in consumption basket. Box focuses on (i) and (iii).
- Sectoral regression results (sectoral PPI inflation on sectoral gross wages, fixed effects):
  - Baseline sample covers 2016-2023 (other specifications use 2015Q1–2023Q1).
  - A 1 percent wage increase is associated with an increase in PPI inflation by 0.13 percentage points, on average and across all sectors.
  - Effects are larger in certain sectors and accumulate over several quarters:
    - Pass-through in the service sector is about 6 times higher than for the average sector.
    - Cumulative pass-through over 3 quarters is about 4 times larger than the contemporaneous effect.
- Selected estimated coefficients (as presented):
  - Log(wage): 13.31* (standard error 7.340) in column (1), Observations 952, R-squared 0.506.
  - Log(wage): 14.04*** (standard error 3.303) in column (2), Observations 2,318, R-squared 0.480.
  - Log(wage): 68.22*** (standard error 13.73) in column (3) (services-only), Observations 140, R-squared 0.654.
  - Log(wage), 2q MA: 22.87** (standard error 9.926) in column (5), Observations 952, R-squared 0.512.
  - Log(wage), 3q MA: 40.91*** (standard error 12.00) in column (6), Observations 952, R-squared 0.515.
  - Lagged effects: 1st lag 11.29* (standard error 6.551); 2nd lag 19.61*** (standard error 6.783).
- Interpretation:
  - Cumulative effects over several quarters can be substantial; over three quarters the effects of wages on PPI inflation more than triple relative to the baseline specification.
  - Services exhibit substantially larger pass-through consistent with higher wage content.

### Cushioning factors that mute wage-to-CPI pass-through
- Romania’s consumption patterns reduce direct pass-through from domestic wages to headline CPI:
  - Consumption of services is low, and services are less tradeable and have a higher labor component.
  - Romania has by far the highest consumption share of non-processed (unprocessed) food (a category least affected by market wages), suggesting home production is more important than in other countries.
  - Import share of private consumption is broadly in line with the EU average and below some CESEE peers.
- Decomposition evidence (2022):
  - Inflation measured by the consumption deflator was primarily driven by increases in profits followed by increases in import prices; the contribution of labor costs is smaller but growing.

### Inflation expectations and recent wage dynamics
- Despite accelerating nominal wages, headline inflation and 1-year and 2-year ahead inflation expectations are slowly declining (period shown: 2020M1–2023M8), indicating anchored expectations so far.
- Continued strong wage growth raises the risk of feeding into inflation:
  - Cumulative wage growth since mid-2021 slightly exceeds cumulative inflation, implying growth in real wages.
  - Real wages currently grow at roughly 4% y/y and 2% m/m.
  - Since 2013, manufacturing wages have outgrown labor productivity.
- Public sector wage increases (e.g., agreed 17 percent for some public sector workers) could spill over to private wages and inflation expectations.

### Policy-relevant implications on wage-driven inflation risks
- Monitor cumulative and lagged pass-through from wages to PPI and from PPI to CPI, especially in services-intensive sectors.
- Consider the role of inflation expectations and corporate profitability in moderating wage pass-through to inflation.
- In presence of strong public sector wage increases, be attentive to spillovers into private wages and inflation expectations.

### Fiscal policy assessment and recommendations
- Main challenge: address excessive structural fiscal deficit; additional revenues needed while meeting spending needs and resuming consolidation.
- Fiscal stance and targets:
  - Fiscal deficits need to fall below 3 percent of GDP (as agreed with the European Commission) to stabilize public debt and reduce external vulnerabilities.
  - Additional adjustment by at least 2 percent of GDP in the next two years needed to reduce fiscal deficit to 4½ percent of GDP in 2024 and below 3 percent by 2025.
- Constraints and priorities:
  - Scope for savings via spending cuts or revenue collection efficiency is limited in the near term.
  - Spending pressures: ageing population, social needs, public service improvements (education and healthcare), and increased defense expenditure.
  - Revenue administration improvements ongoing but not quick or predictably large enough to deliver near-term adjustment.
- Recommended reforms:
  - Raise at least 2 percent of GDP in additional revenue beyond the recent tax package.
  - Eliminate remaining exemptions, privileges and loopholes, including in the PIT and the micro-enterprise regime.
  - Further VAT streamlining to raise efficiency towards the EU average.
  - Implement the reformed property tax.
  - Consider progressive income taxation once PIT is streamlined.
  - Phase in large pension recalculations gradually or offset short-term costs to preserve fiscal consolidation credibility.

### Box 2 — Romania: The New Fiscal Package (impact and assessment)
- Overview:
  - Broadens PIT and health contribution base for workers in agricultural, construction, food processing and IT sectors.
  - Reduces number of goods subject to preferential VAT rates.
  - Measures to limit spending and combat tax evasion (reducing vacancies, eliminating management positions, increased penalties, electronic tracking of goods, lowering cash-payment threshold).
- Impact of revenue measures (2024, % GDP):
  - PIT and SSC: 0.4
  - CIT: 0.3
  - VAT: 0.2
  - Excises: 0.1
  - Total: 1.0
- Strengths:
  - Broadening PIT and health contribution base for specified sectors increases fairness and revenue.
  - Reduction in preferential VAT items improves neutrality.
- Weaknesses and concerns:
  - Increase in micro-enterprise tax from 1 to 3 percent of sales in some sectors raises revenue but does not fully close the loophole.
  - New turnover taxes on banks and large enterprises are inefficient, may tax low-margin companies disproportionately, and may reduce financial intermediation; recommended to be reconsidered as early as possible.
  - Measures to limit spending and fight evasion are unlikely to deliver large or rapid savings.
- Pension law risk:
  - A draft pension law presented in November 2023 could increase public spending by around 0.5 percent of GDP in 2024 and more in 2025 compared with the current baseline projections.
  - Recommendation: phase in the recalculation gradually to align with realization of expected savings or offset the short-term impact through additional fiscal measures.

### Monetary policy, exchange rate, and macroprudential stance
- Monetary policy:
  - Should remain tight until inflation is fully under control; should not be relaxed until core inflation is on a firm downward path as needed for returning headline inflation within the tolerance band by early 2025.
  - Monetary authorities should stand ready to tighten monetary policy if upside risks to core inflation materialize.
- Exchange rate policy:
  - De-facto arrangement classified as stabilized since September 2021.
  - Regression evidence suggests contemporaneous depreciation to the EUR has robust, significant and relatively large effects on 12-month ahead inflation and inflation expectations for Romania.
  - Increasing exchange rate flexibility would support a move to full-fledged inflation targeting but poses challenges given euroization; gradual increase in two-way flexibility recommended to preserve confidence gains.
  - Occasional FXI to smooth large and sudden swings could still be justified under IPF guidance.
- Macroprudential actions:
  - Increased countercyclical capital buffer (CCyB) to 1%, effective by 2023M10.
  - Lowered LTV limits by 10 percentage points for investment property loans in early 2022.
- Liquidity and policy rates:
  - NBR tightened liquidity management from mid-2021 and hiked the policy rate (policy interest rate (eop): 2019: 2.50; 2020: 1.50; 2021: 1.75; 2022: 6.75).
  - Broad money (nominal) percent changes: 2019: 10.9; 2020: 15.3; 2021: 15.8; 2022: 6.9; 2023: 13.6; 2024: 10.0.
  - Reserve money (bn lei): 2019: 108; 2020: 100; 2021: 143; 2022: 160; 2023: 176; 2024: 194.

### External position, reserves, and vulnerabilities
- Current account and REER:
  - Current account (% GDP): 2019: -4.9; 2020: -4.9; 2021: -7.2; 2022: -9.3; 2023: -6.9; 2024: -6.7; 2025: -6.3; 2026: -6.1; 2027: -5.9; 2028: -5.8.
  - Staff assessment: REER is overvalued by 17 percent (2022).
  - Current account gap estimated at -6.3 percent of GDP; EBA approach finds similar CA gap of -5.8 percent of GDP.
- Reserves and financing:
  - International reserves (stock, bn €): 2019: 37.5; 2020: 42.5; 2021: 45.8; 2022: 52.3; 2023: 61.8; 2024: 66.9; 2025: 69.7; 2026: 74.4; 2027: 78.0; 2028: 80.2.
  - Gross international reserves stood at 18.3 percent of GDP and could cover about 4.3 months of prospective imports or about 43 percent of M2 and 89 percent of short-term debt by residual maturity.
  - Reserve coverage relative to IMF ARA metric: around 103 percent of the Fund’s metric for an emerging market with a de-facto ‘fixed’ exchange rate regime; under a floating assumption, reserve adequacy would be above 145 percent of the ARA metric.
  - Large EU inflows amounted to €9.8bn in 2022 (3.1 percent of GDP); these inflows contributed by €6.2bn to reach 103 percent of the ARA metric.
- External financing and capital flows:
  - Capital account inflows in 2022: 2.4 percent of GDP.
  - Net FDI inflows in 2022: 3.4 percent of GDP.
  - Portfolio inflows in 2022: 1.7 percent of GDP.
  - Other investment inflows in 2022: close to 3 percent of GDP.
  - Next Generation EU (NGEU) envelope for Romania: total envelope of 9 percent of GDP over the next 6 years (2021–27 multi-annual budget highlighted as source of ramping EU-funded projects).

### Financial sector soundness and AML/CFT
- Financial soundness indicators (selected):
  - Regulatory capital/risk-weighted assets: 2018: 20.7; 2019: 22.0; 2020: 25.1; 2021: 23.3; 2022: 23.4; 2023: 22.8.
  - Nonperforming loans (NPLs)/total loans: 2018: 5.0; 2019: 4.1; 2020: 3.8; 2021: 3.4; 2022: 2.7; 2023: 2.6.
  - Return on assets: 2018: 1.6; 2019: 1.3; 2020: 1.0; 2021: 1.4; 2022: 1.5; 2023: 1.9.
  - Customer deposits/total loans: 2018: 131.3; 2019: 137.4; 2020: 149.0; 2021: 147.8; 2022: 141.1; 2023: 130.2.
  - Loan-to-deposit ratio: 2018: 76.2; 2019: 72.8; 2020: 67.1; 2021: 67.7; 2022: 70.9; 2023: 76.8.
- AML/CFT:
  - MONEYVAL Mutual Evaluation Report of May 2023 found most elements of an effective AML/CFT system in place but effectiveness insufficient in 10 out of 11 areas; Romania under MONEYVAL’s enhanced follow-up process.
  - Key risks: tax evasion, corruption, and human trafficking.
  - Priority actions identified by MONEYVAL include increasing resources for the financial intelligence function; improving parallel investigations, asset tracing, supervisory functions, reporting by financial intermediaries, beneficial ownership information; developing a national CFT strategy; enhancing data collection solutions.
  - Staff recommendation: compile an overarching AML/CFT strategy to ensure effective functioning.

### Structural reforms, labor force participation, and green transition
- Labor force participation (LFP):
  - Romania’s LFP is among the lowest in the EU.
  - Closing the LFP rate gap of 9½ percentage points to the EU average would:
    - Increase the labor force by about 14½ percent.
    - Ease labor shortages.
    - Raise potential GDP by about 6½ percent.
    - Raise tax revenue.
  - Policy priorities: help women work in the formal economy through better availability of childcare and part-time jobs; invest in education quality.
- Green transition and climate:
  - Agriculture: accounts for 4½ percent of the economy and 21 percent of employment; drought risk rising.
  - Hydropower provides 30 percent of Romania’s electricity.
  - Decarbonization investment needs in electricity, buildings, transport could amount to nearly 3.2 percent of cumulative GDP by 2050.
  - By 2019, GHG emissions had declined by about 54 percent (relative to 1990) and Romania seems well on the way to the EU interim target of a 55 percent reduction by 2030.
  - Policy gaps and recommendations:
    - Update INECP and strengthen regulatory green frameworks (green finance, incentivizing energy efficiency).
    - Consider a complementary carbon tax in transport and building sectors (not covered under EU ETS) and additional excise taxes on fossil fuels; revenue recycling to boost growth and protect vulnerable households, but avoid blanket exemptions for vulnerable households.

### Debt sustainability, fiscal risks, and scenarios
- Fiscal indicators (selected):
  - Gross debt (authorities' definition): 2019: 36.6; 2020: 49.4; 2021: 51.7; 2022: 50.5; 2023: 51.6; 2024: 52.2; 2025: 52.8; 2026: 54.3; 2027: 56.0; 2028: 57.4.
  - Net lending/borrowing (general government, percent of GDP): 2019: -4.6; 2020: -9.6; 2021: -6.7; 2022: -5.8; 2023: -6.0; 2024: -5.1; 2025: -5.1; 2026: -5.1; 2027: -5.0; 2028: -4.7.
  - Public debt baseline projections (selected): 2022: 50.5; 2023: 51.6; 2024: 52.2; 2025: 52.8; 2026: 54.3; 2027: 56.0; 2028: 57.4; 2029: 58.4; 2030: 59.6; 2031: 60.7; 2032: 61.7.
  - Gross financing needs (GFN): 2022: 9.9; 2023: 13.1; 2024: 10.4; 2025: 13.0; 2026: 15.0; 2027: 15.3; 2028: 15.1.
- Risk assessment:
  - Overall risk of sovereign stress: Moderate.
  - DSA indicators signal elevated financeability risks (DFI: 2.4 Risk signal: High; GFI: 22.1 Risk signal: High).
  - Final assessment: Prob. of missed crisis, 2023-2028, if stress not predicted: 54.5 pct.; Prob. of false alarms, 2023-2028, if stress predicted: 3.4 pct.
- Policy implication: credible and durable fiscal consolidation is critical to contain rising debt and gross financing needs.

### Key policy priorities and recommendations (summary)
- Swiftly implement improvements to the AML/CFT framework and its implementation, including compiling an overarching AML/CFT strategy.
- Make full use of available EU support (cohesion and NRRP funds) to finance investment and reforms; EU funds available through 2026 from RRF and RePowerEU total 1½ percent of GDP per annum, in addition to 1¼ percent of GDP in cohesion funds in the 2021–27 budget period.
- Advance governance reforms to enhance administrative capacity, transparency, fight corruption, and make SOEs more efficient.
- Raise labor force participation, focusing on opportunities for women and improving education outcomes.
- Advance the green transition with coordinated investments, regulatory improvements, and use of pricing/tax instruments that recycle revenues to protect vulnerable households and boost growth.
- Pursue fiscal consolidation through revenue-raising reforms (at least 2 percent of GDP beyond the recent package), improved expenditure efficiency, predictable tax and expenditure policies, and cautious implementation of pension reforms.
- Maintain monetary policy discipline until core inflation is firmly on a downward path and consider gradual two-way exchange rate flexibility to strengthen resilience.

*Source: IMF staff report excerpt for Romania (content unit: 1rouea2023001).*

### 1. Pass-Through from Wages to Inflation __________________________________________________________8

### 1. Pass-Through from Wages to Inflation

### Context and recent developments
- Romania has weathered shocks from the pandemic and Russia’s war in Ukraine relatively well; HICP inflation peaked at lower levels than regional EU peers.
- GDP per capita (in purchasing power standard terms) reached 74 percent of the Euro Area average, up from 40 percent in 2007.
- Growth:
  - 2022: 4.7 percent (supported by consumption and private and public investment).
  - 2023H1: around 1.9 percent y/y (slower consumption, subdued external demand; investment accelerated).
  - Output gap: estimated to turn slightly negative in 2023.
- Inflation:
  - CPI inflation peaked at 16.8 percent y/y in November 2022 and fell to 8.8 percent y/y in September 2023.
  - Core inflation peaked at 15.1 percent y/y in February 2023.
  - Two-year ahead inflation expectations have declined but remain slightly above the NBR’s tolerance band of ±1 percent around the target of 2.5 percent.
  - Electricity and gas price caps expire in March 2025; currently only partially binding.
- Fiscal and external balances:
  - Fiscal deficit (cash based): 2022 fell to 5.8 percent of GDP (after 6.7 percent in 2021); consolidation stalled in 2023 (deficit 3.6 percent of GDP in first nine months versus 3.0 percent last year).
  - Current account deficit widened to 9.3 percent of GDP in 2022; declined to 6.8 percent of GDP in first two quarters of 2023.
  - EBA estimates indicate an overvaluation of 17 percent in 2022 (compared to 10 percent a year earlier).
- Financial sector: banking system remains robust; nominal credit growth decelerated since mid-2022 and real credit growth turned negative; household and corporate debt low relative to peers.
- Political: grand coalition (PSD and PNL) since November 2021; Prime Minister switched to PSD in June 2023; multiple elections in 2024.

### Outlook and key projections
- Growth projections:
  - 2023: projected to weaken to 2¼ percent.
  - 2024: forecast to recover to around 2¾ percent (stronger consumption driven by rising real wages and external demand, partially countered by fiscal consolidation).
  - Medium term: potential growth rate of 3¾ percent.
- Inflation projections:
  - CPI inflation is projected to remain outside the NBR’s target band into 2025Q1.
  - Headline inflation expected to return gradually to target band by 2025Q1.
  - Core inflation expected to reach single digits only in 2023Q4 given double-digit wage increases in 2023 outpacing headline inflation.
- Fiscal projections:
  - Staff project the 2023 deficit at 6 percent of GDP (well above the target of 4.4 percent agreed with the European Commission).
  - Authorities’ September 2023 fiscal package: full effect at start of 2024, expected to improve public finances by about 1 percent of GDP, resulting in a deficit forecast just above 5 percent of GDP in 2024.
  - Current account: projected to narrow somewhat over the medium term but remain around 6 percent of GDP.

### Box: Pass-Through from Wages to Inflation — main findings
- Mechanisms: transmission shaped by (i) impact of wages on cost of production, (ii) pass-through from producer prices to consumer prices, and (iii) relative weight of goods and services in consumption basket. Box focuses on (i) and (iii).
- Regression results (sectoral PPI inflation on sectoral gross wages, using fixed effects):
  - A 1 percent wage increase is associated with an increase in PPI inflation by 0.13 percentage points, on average and across all sectors.
  - Effects are larger in certain sectors and accumulate over several quarters:
    - Pass-through in the service sector is about 6 times higher than for the average sector.
    - Cumulative pass-through over 3 quarters is about 4 times larger than the contemporaneous effect.
  - Baseline sample covers 2016-2023.
- Cushioning factors for overall CPI inflation:
  - Romania’s consumption of services is low: domestic wages matter more for services than for most goods because services are less tradeable and have a higher labor component.
  - Romania has by far the highest consumption share of non-processed food (a category least affected by market wages), suggesting home production is more important than in other countries.

### Fiscal policy assessment and recommendations
- Main challenge: address excessive structural fiscal deficit; additional revenues needed while meeting spending needs and resuming consolidation.
- Fiscal stance:
  - Fiscal deficits need to fall below 3 percent of GDP (as agreed with the European Commission) to stabilize public debt and reduce external vulnerabilities.
  - Additional adjustment by at least 2 percent of GDP in the next two years needed to reduce fiscal deficit to 4½ percent of GDP in 2024 and below 3 percent by 2025.
  - Authorities’ consideration of additional consolidation measures is welcome; September 2023 package is a step in the right direction but further consolidation required.
- Constraints on adjustment:
  - Scope for savings via spending cuts or revenue collection efficiency is limited in the near term.
  - Spending pressures: ageing population, social needs, public service improvements (education and healthcare), and increased defense expenditure.
  - Revenue administration improvements are ongoing but not quick or predictably large enough to deliver near-term adjustment.

### Monetary policy and structural recommendations
- Monetary policy: should remain tight until inflation is fully under control.
- Structural reforms: reinvigorate reforms and boost low labor force participation (especially among women) to support green and inclusive long-term growth.
- Risks to implementation: multiple elections in 2024 may complicate fiscal consolidation and NRRP implementation, posing risks to EU grant inflows and longer-term growth.

### Risks, buffers, and vulnerabilities
- Key external risks: regional conflict escalation (Ukraine, Moldova), weakening activity in Europe, abrupt global slowdown affecting growth and capital flows.
- Domestic risks: miscalibration of major central bank policies, continued strong wage growth complicating inflation control.
- Twin deficits create vulnerabilities, but buffers exist:
  - Current account deficit mainly financed without reliance on debt; large EU inflows bolster investor confidence.
  - Eurobond spreads over German bunds fell below 2019 levels.
  - Central bank reserves increased significantly since 2019 (reinforced by ECB repo line).
  - Substantial fiscal liquidity buffer remains in place.
- Reserve and financing indicators:
  - Reserves have risen due to EU transfers and are broadly adequate.
  - Despite elevated deficits and gross financing needs, some fiscal space remains.

*Source: IMF staff calculations.*

### Box 2. Romania: The New Fiscal Package

### Box 2. Romania: The New Fiscal Package

### Overview of the package
- Broadens the tax base and improves revenues by limiting exemptions to paying personal income tax (PIT) and health insurance contributions for workers in the agricultural, construction, food processing and IT sectors.
- Reduces the number of goods subject to preferential VAT rates.
- Contains measures to limit spending and combat tax evasion, including reduction of vacancies and elimination of management positions in the public administration, increased penalties, electronic tracking of goods, and reducing the threshold for cash payments for large transactions.
- Some measures improve fairness and support fiscal adjustment in a growth-friendly way; others do not address design deficiencies in the tax code.

### Impact of revenue measures (2024, % GDP)
- PIT and SSC: 0.4
- CIT: 0.3
- VAT: 0.2
- Excises: 0.1
- Total: 1.0

### Design strengths and weaknesses
- Strengths:
  - Broadening of PIT and health contribution base for specified sectors increases fairness and revenue.
  - Reduction in preferential VAT items improves neutrality.
- Weaknesses and concerns:
  - Increase in the micro-enterprise tax from 1 to 3 percent of sales in some sectors raises revenue but does not fully close the loophole.
  - New turnover taxes on banks and large enterprises are inefficient, may tax low-margin companies disproportionately, and may reduce financial intermediation; these should be reconsidered as early as possible.
  - Measures to limit spending and fight evasion are unlikely to deliver large or rapid savings.

### Further tax reform priorities (paragraph 18)
- Key measures to consider:
  - Elimination of remaining exemptions, privileges and loopholes, including in the PIT and the micro-enterprise regime.
  - Further VAT streamlining to raise efficiency towards the EU average.
  - Implementing the reformed property tax.
  - Using tax policy to promote the efficient use of energy and foster the transition to a carbon-neutral economy.
- Once PIT is streamlined, consider introducing progressive income taxation to help mitigate Romania’s high income inequality.
- Take distributional impacts into account; part of additional revenue could be used to alleviate burdens on lower-income households, e.g., by introducing a zero income tax bracket and/or increasing means-tested social transfers.

### Pension law risk and fiscal implications (paragraph 19)
- A draft pension law presented in November 2023 could increase public spending by around 0.5 percent of GDP in 2024 and more in 2025 compared with the current baseline projections.
- Higher upfront costs stem from a pension recalculation included under the NRRP; measures to more than offset these costs are set to take effect only in the medium to longer run and their impact is uncertain.
- Recommendation: phase in the recalculation gradually to align with realization of expected savings or offset the short-term impact through additional fiscal measures to preserve feasibility and credibility of fiscal consolidation.

### Fiscal planning, communication, and EU funds (paragraphs 20–21)
- Fiscal policy needs to be well planned and clearly communicated to establish a credible path for medium-term fiscal consolidation and secure market financing at lower borrowing costs.
- Early communication and consultation on tax policy changes are critical; ad-hoc changes create uncertainty for households and firms.
- The establishment of a tax policy unit in the Ministry of Finance is welcome to facilitate a medium-term revenue strategy and advance policy design and analysis.
- Spending on public sector wages and pensions needs to become more predictable; planned NRRP reforms in these areas are vital to improve medium-term budgeting.
- EU support to be fully utilized: EU funds available through 2026 from the RRF and RePowerEU total 1½ percent of GDP per annum, in addition to the 1¼ percent of GDP in cohesion funds in the EU’s 2021–27 budget period.
- With regard to the RRF, the second payment was disbursed in October 2023.

### Authorities’ views and commitments (paragraphs 22–23)
- The government expected the fiscal deficit could be contained below 6 percent of GDP in 2023 and reaffirmed commitment to reduce it further to no more than 3 percent of GDP over the medium term.
- Authorities noted significant costs from supporting Ukrainian refugees and investments near the border with Ukraine, and that defense spending was being raised to 2.5 percent of GDP on a structural basis.
- They highlighted expenditure measures taken before adoption of the fiscal package, stepped-up revenue administration efforts, and the importance of the fiscal package for underpinning fiscal consolidation in 2024 and beyond, including measures to enhance expenditure efficiency and fight tax evasion by accelerating digitalization.
- Authorities indicated they submitted a proposal for revising parts of the RRP (necessary after Romania’s allocation was reduced by € 2 bn), noted Romania was the sixth EU member state whose second payment request was disbursed, and anticipated submitting the third payment request before the end of 2023.

*Source: Box 2. Romania: The New Fiscal Package (excerpt).*

### 31.      Improvements to the AML/CFT framework and its implementation are important. The

### 1rouea2023001 - 31.      Improvements to the AML/CFT framework and its implementation are important.

### AML/CFT findings and priority actions
- MONEYVAL Mutual Evaluation Report of May 2023 found that, in most respects, the elements of an effective AML/CFT system are in place, but that its effectiveness is insufficient in 10 out of 11 pre-defined areas, and Romania currently falls under MONEYVAL’s enhanced follow-up process.
- Key risks identified: tax evasion, corruption, and human trafficking.
- Priority actions identified by MONEYVAL:
  - Increase resources and capacity of the financial intelligence function.
  - Improve parallel financial investigations.
  - Strengthen asset tracing.
  - Establish a risk-based supervisory function.
  - Improve reporting by financial intermediaries.
  - Improve beneficial ownership information.
  - Develop a national CFT strategy.
  - Enhance solutions for data collection.
- Staff recommendation: compile an overarching AML/CFT strategy to ensure the effective functioning of the AML/CFT system.

### Authorities’ views on AML/CFT and financial sector risks
- Authorities broadly concurred with staff’s analysis and the recommendations of the MONEYVAL report, had prepared a draft action plan for its implementation, and reported progress in upgrading IT systems despite IT and staffing bottlenecks.
- Authorities did not see major immediate financial sector risks but agreed that the increase in FX borrowing merited close monitoring.
- Authorities welcomed ongoing consolidation in the banking sector.

### Structural reforms and EU fund absorption
- Despite significant progress, Romania still lags peers in absorbing EU funds.
- Authorities have stepped up efforts to use cohesion and NRRP funds more fully; improving the medium-term budget framework, developing a centralized coordination mechanism, and creating a pipeline of appraised investment projects across sectors would be helpful.
- Authorities were confident of their ability to raise absorption of EU funds; they pointed to improved performance in the EU’s 2013–20 budget cycle and expected to achieve an absorption rate of close to 95 percent. Contracting for projects in the 2021–27 budget cycle had started.
- NRRP provides an important opportunity for advancing structural reforms and allocates significant resources to climate and energy objectives (NRRP offers significant resources (41 percent of total support)).

### State-owned enterprises (SOEs), digitization, and governance
- Improving management and monitoring of SOEs would enhance efficiency: a new independent agency to monitor SOEs is being established (216 under the central government, and around 1,300 under local governments), and new legislation strengthening criteria and processes for appointing their board members is under preparation.
- Digitization bottlenecks persist; in tax administration taxpayer services are being digitalized and cash registers connected, and a legal framework for digitalization of government cloud services is being created.
- Governance reforms recommended to reduce informality and inequality:
  - Strengthen anti-corruption institutions.
  - Enhance regulation on conflicts of interest (consider non-financial interests; disclosure requirement for members of parliament; rules on dealings with lobbyists).
  - Strengthen whistleblower protection by transposing EU Directive 2019/1937.
  - Strengthen recovery of assets lost to corruption.

### Labor force participation (LFP)
- Romania’s LFP is among the lowest in the EU.
- Closing the LFP rate gap of 9½ percentage points to the EU average would:
  - Increase the labor force by about 14½ percent.
  - Ease labor shortages.
  - Raise potential GDP by about 6½ percent.
  - Raise tax revenue.
- Policy priorities to raise LFP:
  - Help women work in the formal economy through better availability of childcare and part-time jobs.
  - Invest in the quality of education to raise labor supply and productivity.
- Authorities noted ongoing programs to identify and support groups with low LFP, acknowledged resource constraints, and highlighted large seasonal migration of Romanian workers as a measurement and policy challenge.

### Climate change, emissions, and the green transition
- Climate change is macro-critical for Romania, with increased drought risk affecting agriculture (accounts for 4½ percent of the economy and 21 percent of employment).
- Hydropower provides 30 percent of Romania’s electricity; electricity generation using hydropower and nuclear power could be affected by climate change.
- Romania’s old and less-resilient infrastructure stock is vulnerable to climate-related disasters (e.g., flooding) and costly to maintain.
- Decarbonization investment needs in crucial sectors (electricity, buildings, transport) could amount to nearly 3.2 percent of cumulative GDP by 2050.
- Romania has large potential for renewables and comparative advantage in low-carbon tech products, offering opportunities in green value chains.
- Emissions trajectory and targets:
  - Romania seems well on the way to reaching the EU’s interim target of a 55 percent reduction of greenhouse gas (GHG) emissions by 2030 (relative to 1990).
  - By 2019, Romania’s GHG emissions had already declined by about 54 percent, and are projected to remain below the threshold through 2030.
  - Emissions from electricity production are set to decline further, but emissions in transportation and buildings are rising.
  - Achieving net zero by 2050 will be challenging and depends on further measures.
- Policy instruments and gaps:
  - The Integrated National Energy and Climate Plan (INECP) is being updated; envisages phase-out of coal, investments in natural gas as a transition fuel, renewables, storage, and transmission.
  - Sectoral green schemes include the National Hydrogen Strategy and contract-for-difference for renewables; strict energy efficiency standards for buildings are in place.
  - Gaps exist in the regulatory framework (e.g., green finance, incentivizing energy efficiency in buildings and transport).
  - Staff recommends greater use of tax instruments:
    - A complementary carbon tax in transport and building sectors (not yet covered under EU ETS) could help reverse rising emissions and generate substantial fiscal revenues.
    - Additional excise taxes on fossil fuels could reduce implicit subsidies on diesel fuel and promote electric mobility.
    - Revenue recycling should be used efficiently to boost growth (e.g., by lowering labor income taxes or investing in infrastructure), and vulnerable households should receive targeted support but not be exempt from green pricing.
  - Authorities indicated the expansion of the ETS was planned at the EU level for 2027–28 and that updating the NECP was imminent; they also noted delays in private sector access to EU funds.

### Staff appraisal: macro and fiscal outlook, monetary policy, and financial sector risks
- Macroeconomic performance and risks:
  - Romania’s economy has performed relatively well; growth, while slowing, remains fairly robust and higher than most peers.
  - Inflation, after peaking at lower levels than in CESEE peers, remains too high but is receding gradually.
  - Romania’s external position in 2022 was substantially weaker than the level implied by fundamentals and desirable policies.
  - Growth is expected to recover modestly in 2024 and to return to its potential rate in the medium term, but substantial risks remain (escalation of the war in Ukraine; weakening activity across Europe; abrupt global slowdown; prolonged strong wage growth; electoral calendar affecting fiscal consolidation and structural reforms in 2024).
- Fiscal policy and public finances:
  - A weak fiscal position renders Romania vulnerable; scope to respond to adverse developments is circumscribed by a structural budget deficit well in excess of sustainable levels.
  - Addressing fiscal sustainability is a key priority; continued efforts to improve expenditure efficiency and tax collection are needed, but revenues must be increased given high spending pressures.
  - The recently adopted fiscal package offers welcome improvements in tax policy and should help reduce the fiscal deficit somewhat in 2024; however, some measures (notably new turnover taxes) are not in line with good practice and should be reconsidered.
  - Further tax reforms to raise at least 2 percent of GDP in additional revenue beyond the gains from the recent tax package are needed to put the fiscal deficit on a sustainable medium-term trajectory.
  - Streamlining VAT and personal income taxes (including closing loopholes and removing tax privileges) should be key elements; once achieved, consideration should be given to re-introduce progressive income taxation.
  - Spending on pensions and public sector wages should be set on a sustainable formula-based trajectory as envisaged in the NRRP; the new draft pension law could reduce spending over the longer run but generate upfront fiscal costs that could jeopardize deficit-reduction efforts unless phased in gradually and prudently.
- Monetary and exchange rate policy:
  - Monetary policy should not be relaxed until core inflation is on a firm downward path as needed for returning headline inflation within the tolerance band by early 2025.
  - Monetary authorities should stand ready to tighten monetary policy if upside risks to core inflation materialize.
  - The recent episode of higher exchange rate volatility offers an opportunity to gradually increase two-way exchange rate flexibility over the medium term to reduce destabilizing capital flow opportunities, raise monetary policy effectiveness, and enhance resilience; this should be done gradually to preserve confidence gains.
  - Enhanced data on inflation expectations would support monetary policy calibration.
- Financial sector vulnerabilities:
  - Financial sector fundamentals are strong, underpinning resilience, but emerging risks need monitoring.
  - Recent increase in corporate FX borrowing warrants close scrutiny.
  - The turnover tax on banks could, if maintained for an extended period, weaken banks’ financial buffers and already-low financial intermediation.

### Policy priorities and final recommendations
- Swiftly implement improvements to the AML/CFT framework and its implementation, including compiling an overarching AML/CFT strategy.
- Make full use of available EU support (cohesion and NRRP funds) to finance investment and reforms.
- Advance governance reforms to enhance administrative capacity, transparency, fight corruption, and make SOEs more efficient.
- Raise labor force participation, focusing on opportunities for women and improving education outcomes.
- Advance the green transition with coordinated investments, regulatory improvements, and use of pricing/tax instruments that recycle revenues to protect vulnerable households and boost growth.
- Pursue fiscal consolidation through revenue-raising reforms (at least 2 percent of GDP beyond the recent package), improved expenditure efficiency, predictable tax and expenditure policies, and cautious implementation of pension reforms.
- Maintain monetary policy discipline until core inflation is firmly on a downward path and consider gradual two-way exchange rate flexibility to strengthen resilience.

*Source: IMF staff report excerpt for Romania (content unit: 1rouea2023001).*

### 55.      It is recommended that the next Article IV consultation be held on the standard 12-

### 1rouea2023001 - 55.      It is recommended that the next Article IV consultation be held on the standard 12-

### Proposed decision
- The Executive Board endorses the thrust of the staff appraisal in the report for the 2023 Article IV consultation with Romania (SM/23/238, 11/17/2023).
- It is expected that the next Article IV consultation with Romania will take place on the standard 12-month cycle.

### Key macroeconomic projections and indicators (selected)
- Real GDP (expenditure): 2019: 3.9; 2020: -3.7; 2021: 5.7; 2022: 4.6; 2023: 2.2; 2024: 2.7; 2025: 3.6; 2026: 3.8; 2027: 3.8; 2028: 3.7.
- Consumer prices (avg): 2019: 3.8; 2020: 2.6; 2021: 5.0; 2022: 13.8; 2023: 10.5; 2024: 5.8; 2025: 3.1; 2026: 2.8; 2027: 2.6; 2028: 2.5.
- GDP deflator (eop): 2019: 6.8; 2020: 4.1; 2021: 5.4; 2022: 13.4; 2023: 8.2; 2024: 6.7; 2025: 5.6; 2026: 3.3; 2027: 2.6; 2028: 2.5.
- Investment (% GDP): 2019: 24.3; 2020: 24.5; 2021: 26.3; 2022: 26.8; 2023: 23.8; 2024: 24.6; 2025: 24.6; 2026: 24.3; 2027: 24.6; 2028: 24.3.
- Gross national savings (% GDP): 2019: 19.4; 2020: 19.6; 2021: 19.1; 2022: 17.4; 2023: 16.9; 2024: 17.9; 2025: 18.5; 2026: 18.8; 2027: 18.7; 2028: 18.5.
- Potential output: 2019: 3.5; 2020: 2.9; 2021: 3.0; 2022: 3.0; 2023: 3.0; 2024: 3.0; 2025: 2.9; 2026: 4.2; 2027: 3.8; 2028: 3.7.
- Output gap (% potential GDP): 2019: 3.2; 2020: -1.2; 2021: -0.8; 2022: 0.7; 2023: -0.1; 2024: -0.3; 2025: 0.3; 2026: 0.3; 2027: 0.0; 2028: 0.0.

### Fiscal outlook (selected)
- General government revenue: 2019: 28.8; 2020: 28.6; 2021: 30.4; 2022: 31.0; 2023: 31.9; 2024: 31.9; 2025: 31.6; 2026: 31.7; 2027: 31.2; 2028: 31.0 (percent of GDP).
- General government expenditure: 2019: 33.3; 2020: 38.2; 2021: 37.1; 2022: 36.8; 2023: 37.9; 2024: 37.0; 2025: 37.0; 2026: 36.7; 2027: 36.2; 2028: 35.7 (percent of GDP).
- Net lending/borrowing (general government): 2019: -4.6; 2020: -9.6; 2021: -6.7; 2022: -5.8; 2023: -6.0; 2024: -5.1; 2025: -5.1; 2026: -5.1; 2027: -5.0; 2028: -4.7 (percent of GDP).
- Structural balance: 2019: -5.0; 2020: -4.9; 2021: -7.4; 2022: -5.7; 2023: -5.6; 2024: -4.8; 2025: -5.2; 2026: -5.1; 2027: -5.0; 2028: -4.7 (percent of potential GDP).
- Structural primary balance: 2019: -3.9; 2020: -3.6; 2021: -5.9; 2022: -3.7; 2023: -3.2; 2024: -2.6; 2025: -3.1; 2026: -3.2; 2027: -3.1; 2028: -2.8 (percent of potential GDP).
- Gross debt (authorities' definition): 2019: 36.6; 2020: 49.4; 2021: 51.7; 2022: 50.5; 2023: 51.6; 2024: 52.2; 2025: 52.8; 2026: 54.3; 2027: 56.0; 2028: 57.4 (percent of GDP).

### External sector and balance of payments (selected)
- Current account (% GDP): 2019: -4.9; 2020: -4.9; 2021: -7.2; 2022: -9.3; 2023: -6.9; 2024: -6.7; 2025: -6.3; 2026: -6.1; 2027: -5.9; 2028: -5.8.
- Merchandise trade balance (% GDP): 2019: -8.0; 2020: -8.6; 2021: -9.6; 2022: -11.3; 2023: -10.0; 2024: -10.2; 2025: -9.9; 2026: -9.9; 2027: -9.8; 2028: -9.7.
- Exports (f.o.b, percent change): 2019: 28.1; 2020: 26.1; 2021: 29.1; 2022: 30.0; 2023: 28.7; 2024: 28.1; 2025: 28.0; 2026: 28.2; 2027: 28.5; 2028: 28.7.
- Imports (f.o.b, percent change): 2019: 36.1; 2020: 34.7; 2021: 38.6; 2022: 41.3; 2023: 38.7; 2024: 38.3; 2025: 37.8; 2026: 38.1; 2027: 38.3; 2028: 38.5.
- International reserves (stock, bn €): 2019: 37.5; 2020: 42.5; 2021: 45.8; 2022: 52.3; 2023: 61.8; 2024: 66.9; 2025: 69.7; 2026: 74.4; 2027: 78.0; 2028: 80.2.
- Int'l investment position, net (% GDP): 2019: -43.1; 2020: -47.3; 2021: -46.7; 2022: -40.9; 2023: -40.2; 2024: -41.7; 2025: -42.9; 2026: -44.6; 2027: -46.9; 2028: -49.1.
- Gross external debt (% GDP): 2019: 49.0; 2020: 57.5; 2021: 56.5; 2022: 50.6; 2023: 50.5; 2024: 51.2; 2025: 51.1; 2026: 52.0; 2027: 53.2; 2028: 54.2.

### Monetary policy, liquidity and macroprudential actions
- The National Bank of Romania (NBR) tightened liquidity management from mid-2021 and subsequently hiked the policy rate (see Romania Policy Rate series, 2019M1-2023M9).
- Exchange-rate stability was broadly maintained during the commodity shock episode.
- Macroprudential measures implemented:
  - Increased the countercyclical capital buffer (CCyB) in two steps to 1%, effective by 2023M10.
  - Lowered loan-to-value (LTV) limits by 10 percentage points for loans granted to individuals for the purchase of investment properties in early 2022.
- Monetary and liquidity indicators (selected):
  - Broad money (nominal) percent changes: 2019: 10.9; 2020: 15.3; 2021: 15.8; 2022: 6.9; 2023: 13.6; 2024: 10.0.
  - Policy interest rate (eop): 2019: 2.50; 2020: 1.50; 2021: 1.75; 2022: 6.75.
  - Reserve money (bn lei): 2019: 108; 2020: 100; 2021: 143; 2022: 160; 2023: 176; 2024: 194.

### Financial sector soundness (selected indicators)
- Regulatory capital/risk-weighted assets: 2018: 20.7; 2019: 22.0; 2020: 25.1; 2021: 23.3; 2022: 23.4; 2023: 22.8 (Dec/Jun as reported).
- Nonperforming loans (NPLs)/total loans: 2018: 5.0; 2019: 4.1; 2020: 3.8; 2021: 3.4; 2022: 2.7; 2023: 2.6 (Dec/Jun as reported).
- Return on assets: 2018: 1.6; 2019: 1.3; 2020: 1.0; 2021: 1.4; 2022: 1.5; 2023: 1.9.
- Customer deposits/total loans: 2018: 131.3; 2019: 137.4; 2020: 149.0; 2021: 147.8; 2022: 141.1; 2023: 130.2.
- Loan-to-deposit ratio: 2018: 76.2; 2019: 72.8; 2020: 67.1; 2021: 67.7; 2022: 70.9; 2023: 76.8.

### Annex I — IPF assessment and policy implications
- Context and aim:
  - The Annex assesses Romania’s response to the recent commodity shock through the IMF’s Integrated Policy Framework (IPF), which jointly considers monetary, exchange rate, macroprudential and capital flow management policies and their interactions.
  - Credible and durable fiscal consolidation is emphasized as a critical element of an appropriate policy mix for Romania.
- Key country-specific features affecting policy choice:
  - Romania’s exchange rate volatility is comparatively limited; the de-facto exchange rate regime has been classified by the Fund as stabilized since September 2021.
  - EU membership generally rules out the use of effective capital flow management measures (CFM).
  - Romania exhibits a relatively high degree of euroization and a small financial sector compared to EU peers, limiting monetary policy transmission and making the exchange rate a relatively important transmission channel.
- Commodity shock characteristics:
  - Romania faced a severe commodity shock with larger inflationary impact than many EU peers because energy and food weights in private consumption are large, making the shock partly asymmetric.
- NBR response (summary):
  - Tightened liquidity management from mid-2021, then raised the policy rate.
  - Exchange-rate stability broadly maintained.
  - Reserves can build passively through NBR handling of FX receipts on behalf of the treasury; such transactions are not necessarily sterilized.
- Macroprudential response (summary):
  - Increased CCyB to 1% effective 2023M10.
  - Reduced LTV by 10 percentage points for investment property loans in early 2022.

*Sources: Authorities' data and IMF staff estimates and projections.*

### 6.      While EU membership generally rules out capital flow measures, Romania has in place

### 6.      While EU membership generally rules out capital flow measures, Romania has in place 

### Borrower-based and prudential instruments
- Debt service to income (DSTI), measured by the ratio between total monthly payment obligations arising from credits and borrower’s net income, is capped at 20% for FX exposures, some 20pp lower than for Lei exposures.
- Loan-to-value (LTV) limits for housing loans are between 5 and 25pp lower for FX loans, depending on the currency and whether the borrower is hedged.
- Reserve requirements based on foreign currency-denominated liabilities from credit institutions' balance sheets could help contain the expansion of foreign exchange liabilities, but in Romania they are used as a tool of monetary policy. Currently, reserve requirements are 8% for domestic currency and 5% for foreign currency liabilities).

### Monetary policy tightening, capital inflows, and trade-offs during the shock
- The NBR increased the policy rate from 1.25 percent in 2021M9 to 7 percent in 2023M1, increasing policy and market rate differentials with the euro area.
- Short-term external capital inflows accelerated, possibly pointing to destabilizing carry trade; ex-post returns to carry trade increased across Romania and regional peers.
- Romania’s relatively stable exchange rate reduces carry-trade risk for traders, which can complicate detection because carry trade can be executed by resident or non-resident entities; the observed increase in non-resident capital inflows is consistent with increased carry trade activity.
- Short-term capital inflows can induce appreciation and raise the risk of sudden reversals that lead to sharp exchange rate depreciations, especially when FX markets are shallow.
- Romania’s relatively high degree of euroization compared to EU peers increases vulnerability to depreciations.
- The Treasury’s conversion of large FX receipts into domestic currency through the NBR, only partly sterilized, generated a rapid expansion of excess liquidity during 2022Q4 and 2023Q1; market rates fell by around 150bps while the policy rate was still being hiked through January 2023.
- In January 2022, the NBR fully restored the wider symmetric corridor of the deposit and lending rate around the policy rate that had existed before the COVID pandemic, enabling greater deviation of market from policy rates.

### Diagnosis on FX interventions and reserve position
- The de-jure exchange rate arrangement is managed floating; the de-facto arrangement is classified by the Fund as stabilized.
- There is no public information on the occurrence, scale or magnitude of FXI (foreign exchange intervention); the NBR’s arrangement with the MoF—where the NBR receives all FX inflows on behalf of the MoF and handles all outflows including interest and principal payments of public debt in foreign currency—means standard proxy methods cannot approximate the NBR’s transactions in the FX market.
- NBR communication on exchange rate management is limited.
- Available data suggest FX reserves have increased significantly on the back of inflows from EU funding:
  - Large EU inflows amounted to €9.8bn in 2022 (3.1 percent of GDP).
  - These inflows contributed by €6.2bn to reach 103 percent of the ARA metric, implying the NBR has the firepower for FXI and could credibly manage the exchange rate.
- The NBR publishes monthly reserve levels but does not decompose aggregate month-to-month changes, which reflect inflows and outflows on behalf of the Ministry of Finance, changes in minimum reserve requirements on credit institutions’ FX liabilities and FXI, among other sources.

### Market depth, euroization, and balance-sheet considerations
- Romania’s FX market is relatively shallow, which can justify FX interventions to prevent excessive volatility when external flows cannot be absorbed by market participants.
- Financial euroization is pronounced: asset euroization reflects distrust in the domestic currency due to past high inflation and large depreciations (notably in the 1990s). Overcoming this distrust has proven difficult during the past 25 years despite disciplined monetary policy and typically low inflation.
- Pronounced depreciation can reinforce euroization and possibly lead to disintermediation.
- Aggregate-level balance-sheet mismatches are a concern:
  - NFC FX loans from the domestic banking system by far exceed NFC FX deposits.
  - FX lending to NFCs increased significantly since early 2022, raising concern about the degree of hedging.
  - More than half of public debt is denominated in foreign currency.
- The authorities routinely remind banks and borrowers that in the event of depreciation, the capacity of unhedged borrowers to service FX debt can quickly deteriorate.

### Pass-through to inflation and policy implications
- Exchange rate stability appears relatively important for controlling inflation and anchoring inflation expectations in Romania:
  - Regression results (detailed in Section F) suggest robust, significant and relatively large effects of contemporaneous depreciation to the EUR on 12-month ahead inflation and inflation expectations for Romania.
  - By contrast, effects in EU peers are either not consistently significant or smaller.
  - Depreciation against the USD does not have significant effects on inflation levels and expectations.
- Policy options and trade-offs:
  - Increasing exchange rate flexibility would support a move to full-fledged inflation targeting by accommodating interest rate differentials needed to address asymmetric shocks, limiting carry-trade opportunities and balance-sheet mismatches, and increasing resilience to external shocks.
  - Greater exchange rate flexibility, together with fiscal consolidation, would help strengthen Romania’s weak external position.
  - Moving to more exchange rate flexibility poses serious challenges and could require a comprehensive strategy to gradually overcome euroization.
  - Capital flow measures used by some dollarized countries to limit vulnerabilities may not be allowed for Romania under EU regulation.
  - Within a flexible exchange rate and inflation targeting framework, occasional FXI to smooth large and sudden swings in the exchange rate could still be justified based on IPF guidance.
  - Another option over the medium term is joining the euro area; Romania has accepted the obligation to join the eurozone when it meets the relevant economic convergence criteria, but currently does not meet the entry criteria and premature adoption could be detrimental because the ECB’s monetary policy might be less appropriate for Romania’s output and price volatility.
  - Meanwhile, existing policy practices that dampen exchange rate flexibility elevate the importance of fiscal policy capacity; fiscal consolidation is key to lowering the excessive current account deficit and supporting monetary policy in reducing inflation.

### Regressions and empirical approach
- The pass-through of the EUR/RON exchange rate on inflation and inflation expectations is assessed with linear and non-linear local projections. The specification includes:
  - Dependent variables: CPI and 12-month-ahead Consensus inflation forecasts.
  - Key regressors: d_EUR (monthly change in the EUR exchange rate), inflation (y-o-y), IP (cyclical component of the industrial production index), d_oil (monthly percentage change in the global oil price index), d_food (monthly percentage change in global food prices).
  - Horizons considered include 6 and 12 months for expected inflation.
- Regression results indicate significant contemporaneous effects of depreciation to the EUR on 12-month ahead inflation and inflation expectations for Romania.

### Annex II — Wage growth and inflation risks
- Continued strong wage growth raises the risk of feeding into inflation:
  - Cumulative wage growth since mid-2021 slightly exceeds cumulative inflation, implying growth in real wages.
  - Real wages currently grow at roughly 4% y/y and 2% m/m, suggesting accelerating real wage growth.
  - Since 2013, manufacturing wages have outgrown labor productivity.
- Headline wage growth masks heterogeneity across sectors; many sectors experienced cumulative wage increases above 20 percent.
- The public sector is likely to contribute to continued strong wage growth; wage increases of 17 percent have already been agreed for some public sector workers.
- Romania’s wage growth is not exceptional in CESEE, but real wage increases are not universal across countries.

*Source: IMF staff report (Romania chapter content provided).*

### 4.      Previous Fund work examined the effects of wages on inflation. Alvarez et al. (2022)

### 4.      Previous Fund work examined the effects of wages on inflation. Alvarez et al. (2022)

### A. Summary of prior Fund findings on wage–price dynamics
- Alvarez et al. (2022) examine wage-price spirals using cross-country data from advanced economies dating back to the 1960s and conclude that an acceleration of nominal wages should not necessarily be seen as a sign that a wage-price spiral is taking hold.
- Boranova et al. (2019), using data from EU countries, find that the pass-through from wage growth to inflation is significantly lower in periods of subdued inflation and inflation expectations, greater competitive pressures, and robust corporate profitability.
- IMF (2023), based on a panel VAR analysis, shows that wage pass-through to core inflation is smaller when inflation expectations are better anchored and when corporate profitability is higher.
- Abdallah et al. (2023) compile a cross-country database on public and private sector wages and find that public-sector workers earn around 10 percent more relative to comparable private sector workers; using local projections they show both private sector wages and inflation respond positively to increases in public wages, with heterogeneity across countries.
- Hansen et al. (2023) decompose inflation for the euro area into contributions from changes in labor costs, import costs, profits and taxes.

### B. Decomposition evidence for Romania (and euro area comparison)
- Applying Hansen et al.’s methodology to Romania suggests that in 2022:
  - Inflation measured by the change in the consumption deflator was primarily driven by increases in profits followed by increases in import prices.
  - The contribution of labor costs is smaller but growing.
- The picture for the euro area is similar, although the role of import prices is relatively more important.

### C. Private sector wage growth and inflation: channels and stylized facts
- Three transmission dimensions considered:
  1. Pass-through of wages to producer prices.
  2. Effects of producer prices on consumer prices.
  3. Consumption patterns (extent to which domestic wages matter for households’ consumption basket).
- Stylized facts:
  - Recent wage growth exceeded productivity growth in available sectors.
  - Romania’s labor share is 14 percent (Percent, 2020) — slightly below the EU average but higher than many CESEE peers.
  - PPI for domestic consumer goods increased by 10 percentage points more than the HICP-based index for goods over 2021M7–2023M5, suggesting profit margins shrank among some businesses over that period.
  - Services PPI and HICP-based index for services increased by roughly the same amounts in 2022, but services are less important in Romanian consumption.
  - Romania has the highest consumption share of unprocessed food across compared countries, implying home production is relatively important.
  - The import share of private consumption in Romania is broadly in line with the EU average but below those of available CESEE peers.

### D. Regression evidence: sectoral wage–PPI transmission
- Data and specification:
  - Unweighted, sectoral gross wage data matched with producer prices for domestic products and services at quarterly frequency.
  - Baseline sample span: 2015Q1–2023Q1.
  - Regression: sectoral PPI inflation on lagged log(wage) with industry-year, industry-quarter, and year-quarter fixed effects (equation (1) in the text).
  - Quarterly averages used for consistency and noise reduction.
- Main quantitative findings:
  - Baseline: a 1 percent increase in wages is on average associated with an increase in PPI inflation of around 0.13 percentage points in the same quarter.
  - Table 1 reported regression coefficients (presented as percentages multiplied by 100 in table form). Selected coefficient estimates (as presented):
    - Log(wage): 13.31* (standard error 7.340) in column (1) with Observations 952, R-squared 0.506.
    - Log(wage): 14.04*** (standard error 3.303) in column (2) with Observations 2,318, R-squared 0.480.
    - Log(wage): 68.22*** (standard error 13.73) in column (3) (services-only sample) with Observations 140, R-squared 0.654.
    - Log(wage): 14.21* (standard error 7.286) in column (4) with Observations 952, R-squared 0.507.
    - Log(wage), 2q MA: 22.87** (standard error 9.926) in column (5) with Observations 952, R-squared 0.512.
    - Log(wage), 3q MA: 40.91*** (standard error 12.00) in column (6) with Observations 952, R-squared 0.515.
    - Log(wage), 1st lag: 11.29* (standard error 6.551) reported in lag specification.
    - Log(wage), 2nd lag: 19.61*** (standard error 6.783) reported in lag specification.
  - Fixed effects included: Industry-year FE, Industry-quarter FE, Year-quarter FE (as noted per column).
  - No. of sectors: 34 in most specifications; 5 in the services-only specification. No. of periods ranges from 28 to 71 across specifications.
- Interpretation:
  - Cumulative effects over several quarters can be substantial; over three quarters the effects of wages on PPI inflation more than triple relative to the baseline specification.
  - The services-only specification yields a substantially larger coefficient, consistent with higher wage content in services.

### E. Transmission from PPI to CPI and cushioning factors
- Transmission risk:
  - PPI increases can transmit to consumer prices; profit margins that shrank cannot shrink indefinitely, implying future pass-through potential.
  - Services make a smaller contribution to Romanian consumption relative to goods; thus wage-driven pass-through via services may have a muted effect on headline inflation.
- Cushioning consumption patterns in Romania:
  - Low consumption of services compared to many EU countries reduces domestic wage relevance for the consumption basket.
  - High share of unprocessed food in consumption suggests a larger role for home production and lower sensitivity to market wages.
  - Import share of private consumption is broadly in line with EU average and below some CESEE peers.

### F. Inflation expectations and recent dynamics
- Despite accelerating nominal wages, headline inflation and 1-year and 2-year ahead inflation expectations are slowly declining (period shown: 2020M1–2023M8), suggesting that high wage growth does not necessarily undermine inflation-anchoring in the short run.

### G. Public sector wage growth: potential inflationary channels and evidence
- Channels:
  - Public sector wages do not directly affect consumer prices for many public services (provided free or below market cost), but can:
    - Increase inflation expectations.
    - Push up private sector wages through labor market competition or by providing implicit guidance in wage negotiations.
- Cross-country evidence:
  - Abdallah et al. (2023) find that public-sector wage increases lead to positive responses in private sector wages and inflation, with heterogeneity across countries.
- Romanian context:
  - Given strong anticipated public sector wage growth in Romania, the potential for spillovers to private wages and inflation is an important consideration.

### H. Policy-relevant implications highlighted in the text
- Wage growth implications:
  - Real wage growth exceeding productivity can increase producer price pressures; the labor share and sectoral structure matter for transmission strength.
- Monitoring and policy priorities:
  - Monitor cumulative and lagged pass-through from wages to PPI and from PPI to CPI, especially in services-intensive sectors.
  - Consider the role of inflation expectations and corporate profitability in moderating wage pass-through to inflation.
  - In the presence of strong public sector wage increases, be attentive to spillovers into private wages and inflation expectations.

*Source: Excerpt from 1rouea2023001 (Romania), IMF staff analysis and referenced IMF working papers listed in the source text.*

### 6.3 percent of GDP, implying a high degree of uncertainty about the

### 1rouea2023001 - 6.3 percent of GDP, implying a high degree of uncertainty about the

### Current account assessment and CA gap
- Current account gap estimated at -6.3 percent of GDP, implying a high degree of uncertainty about the drivers of Romania’s current account and the extent of its misalignment with fundamentals.
- Recent one-off shocks and the range around the norm further increase uncertainty around this assessment.
- EU capital transfers finance a large extent of the current account deficit; EU grants augment the current account deficit without entailing new liabilities and are not incorporated in the CA norm.
- External Sustainability (ES) approach of the EBA finds a similar CA gap of -5.8 percent of GDP.
- EBA model 2022 estimates (as reported):  
  - 2022 EBA Model Estimate: CA-Actual -9.3  
  - Cyclically adjusted: -8.5  
  - Adjusted CA norm: -2.6  
  - CA Gap: -5.9  
  - Of which: Policy gaps 0.4; Residual -6.3  
  - Elasticity: 0.35  
  - REER Gap (%) 16.9

### Real exchange rate (REER) and assessment
- Background: CPI-based REER appreciated by 3.7 percent in 2022; PPI-based measure appreciated by 11.2 percent; unit labor cost-based REER fell by 1.4 percent. The appreciation (based on Eurostat data) was similar to most CESEE peers.
- EBA CA model implies a REER overvaluation of about 17 percent in 2022 (applying an estimated elasticity of 0.35).
- This represents an increase from 13 percent overvaluation estimated by the EBA model in 2021 and is consistent with the CPI-based REER appreciation.
- EBA REER index methodologies: index method 10.2 percent and level method -18.2 percent are subject to measurement uncertainty and large residuals and do not appear to capture Romania-specific factors well.
- Staff assessment: REER is overvalued by 17 percent.

### Capital and financial accounts: flows and outlook
- Capital account inflows in 2022: 2.4 percent of GDP (up from 2.2 percent in 2021), primarily reflecting an increase in EU grants.
- Net FDI inflows in 2022: 3.4 percent of GDP (only slightly lower than in 2021).
- Portfolio inflows in 2022: 1.7 percent of GDP (slightly higher than pre-pandemic levels).
- Other investment inflows in 2022: close to 3 percent of GDP, reflecting government loans under the EU’s Recovery and Resilience Facility (RRF) and IFIs; trade credits also increased significantly.
- There are no restrictions on the capital and financial accounts.
- Assessment and projections:  
  - Capital account inflows expected to continue increasing 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, underpinned by robust growth and attractiveness for reshoring, notwithstanding infrastructure needs, rising labor costs, and policy uncertainty.  
  - Portfolio investment flows into sovereign bonds may need to remain sizeable given only gradual fiscal consolidation, but FDI inflows and EU funds are projected to finance most of Romania’s current account deficit.

### FX intervention and reserves adequacy
- De facto exchange rate arrangement classified as stabilized since August 2019 (with retroactive reclassifications noted in footnote).
- Gross international reserves stood at 18.3 percent of GDP and could cover about 4.3 months of prospective imports or about 43 percent of M2 and 89 percent of short-term debt by residual maturity.
- Assessment: Reserves are assessed to be adequate.
- Reserve coverage relative to IMF ARA metric: around 103 percent of the Fund’s metric for assessing reserve adequacy (ARA) for emerging markets with a de-facto ‘fixed’ exchange rate regime.
- Under a floating exchange rate assumption, reserve adequacy would be above 145 percent of the ARA metric.
- Medium-term projection: reserves are projected to fall below 100 percent of the Fund’s ARA metric as current account deficits (financed largely by EU grants and FDI) are expected to remain elevated.
- Footnote: Romania’s exchange rate was re-classified retroactively as crawl-like from floating from July 2016, and subsequently reclassified retroactively as stabilized from crawl-like from September 2021; reserve adequacy metric in recent years is based off that for a ‘fixed’ exchange rate regime.

### Sovereign risk, debt sustainability, and public debt projections
- Overall risk of sovereign stress: Moderate, reflecting relatively low near-term vulnerability and moderate medium- and long-term vulnerability.
- Near-term: Relatively low vulnerability.
- Medium-term and long-term: Moderate risks due to strong growth prospects, significant scope for revenue mobilization, and Romania's EU membership; fiscal pressures from the need to build fiscal space for climate mitigation spending and demographic change pose risks.
- DS A summary assessment: While budget deficits and gross financing needs are projected to remain elevated and debt to rise, successful economic convergence to CESEE peers and continued favorable economic prospects, underpinned by EU membership, support high investor confidence. Medium- to longer-term fiscal pressures pose risks.
- DSA and fanchart indicators (selected values):  
  - Fanchart width: 59.9 0.9 (percent of GDP)  
  - Probability of debt non-stabilization (percent): 97.9 0.8  
  - Terminal debt-to-GDP x: 32.8 0.7  
  - Debt fanchart index (DFI): 2.4 (Risk signal: High)  
  - Average baseline gross financing needs (GFN): 13.7 4.7 (percent of GDP)  
  - GFN financeability index (GFI): 22.1 (Risk signal: High)  
  - Final assessment: Prob. of missed crisis, 2023-2028, if stress not predicted: 54.5 pct.; Prob. of false alarms, 2023-2028, if stress predicted: 3.4 pct.
- Public debt dynamics (Figure 3 baseline scenario, percent of GDP):  
  - Public debt: 2022: 50.5; 2023: 51.6; 2024: 52.2; 2025: 52.8; 2026: 54.3; 2027: 56.0; 2028: 57.4; 2029: 58.4; 2030: 59.6; 2031: 60.7; 2032: 61.7.  
  - Change in public debt: 2022: -1.2; 2023: 1.1; 2024: 0.6; 2025: 0.6; 2026: 1.5; 2027: 1.7; 2028: 1.4; 2029: 1.0; 2030: 1.2; 2031: 1.0; 2032: 1.1.  
  - Contribution of identified flows to change in public debt (selected): Primary deficit 2022: 3.8; 2023: 3.6; 2024: 2.9; 2025: 3.0; 2026: 3.2; 2027: 3.1; 2028: 2.8; 2029: 2.6; 2030: 2.7; 2031: 2.5; 2032: 2.6.  
  - Gross financing needs (GFN): 2022: 9.9; 2023: 13.1; 2024: 10.4; 2025: 13.0; 2026: 15.0; 2027: 15.3; 2028: 15.1; 2029: 15.4; 2030: 15.2; 2031: 15.4; 2032: 16.2.  
  - Memo: Real GDP growth (percent): 2022: 4.6; 2023: 2.2; 2024: 2.7; 2025: 3.6; 2026: 3.8; 2027: 3.8; 2028: 3.7; 2029: 3.5; 2030: 3.6; 2031: 3.6; 2032: 3.5.  
  - Memo: Inflation (GDP deflator; percent): 2022: 13.4; 2023: 8.2; 2024: 6.7; 2025: 5.6; 2026: 3.3; 2027: 2.6; 2028: 2.5; 2029: 3.0; 2030: 2.5; 2031: 2.6; 2032: 2.7.  
  - Memo: Nominal GDP growth (percent): 2022: 18.6; 2023: 10.6; 2024: 9.6; 2025: 9.5; 2026: 7.3; 2027: 6.5; 2028: 6.3; 2029: 6.6; 2030: 6.2; 2031: 6.3; 2032: 6.3.
- Commentary on projections: Public debt has increased significantly from a low level and is projected to rise further absent fiscal consolidation measures; authorities remain committed to medium-term fiscal consolidation though the 2023 fiscal target is highly unlikely to be reached.

### Medium- and long-term risk considerations and scenarios
- Medium-term index and modules indicate elevated risk driven by debt and GFN financeability metrics; signals characterized as High for DFI and GFI components.
- Long-term projections and alternative baselines indicate fiscal consolidation is needed to prevent public debt and gross financing needs (GFN) from rising steadily.
- Climate mitigation scenarios: climate mitigation costs, if debt-financed, would raise GFN and public debt further; long-term projections include baseline, standardized and customized climate mitigation scenarios, and debt-stabilizing primary balance alternatives.
- Long-term projection illustrative values (selected):  
  - Baseline: Custom long-run indicators include Real GDP growth 3.7%; Primary Balance-to-GDP -2.8%; Real depreciation -1.4%; Inflation (GDP deflator) 2.5%.  
  - Custom baseline: Real GDP growth 3.3%; Primary Balance-to-GDP -2.0%; Real depreciation 0.0%; Inflation (GDP deflator) 2.6%.

*Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1rouea2023001.pdf*

### Annex VI. Implementation of Past Article IV Recommendations

### Annex VI. Implementation of Past Article IV Recommendations

### Fund relations — membership, quota, and financial arrangements
- Membership Status: Joined 12/15/72; Article VIII.
- Quota: 1,811.40 SDR million (100.00 percent).
- Fund holdings of currency: 1,811.40 SDR million (100.00 percent).
- Reserve Tranche Position: 0.00 SDR million (0.00 percent).
- Net cumulative SDR allocation: 2,720.91 SDR million (100.00 percent).
- SDR holdings: 2,737.40 SDR million (100.62 percent).
- Outstanding Purchases and Loans: Stand-By Arrangements: 0.00 SDR million (0.00 percent of quota).

Financial arrangements approved (selected):
- Stand-By, Approval Date 09/27/13, Expiration Date 09/26/15, Amount Approved 1,751.34 SDR million, Amount Drawn 0.00 SDR million.
- Stand-By, Approval Date 03/31/11, Expiration Date 06/30/13, Amount Approved 3,090.6 SDR million, Amount Drawn 0.00 SDR million.
- Stand-By, Approval Date 05/04/09, Expiration Date 03/30/11, Amount Approved 11,443.00 SDR million, Amount Drawn 10,569.00 SDR million.
- Stand-By, Approval Date 10/31/01, Expiration Date 10/15/03, Amount Approved 300.00 SDR million, Amount Drawn 300.00 SDR million.
- Stand-By, Approval Date 08/05/99, Expiration Date 02/28/01, Amount Approved 400.00 SDR million, Amount Drawn 139.75 SDR million.
- Stand-By, Approval Date 04/22/97, Expiration Date 05/21/98, Amount Approved 301.50 SDR million, Amount Drawn 120.60 SDR million.
- Stand-By, Approval Date 05/11/94, Expiration Date 04/22/97, Amount Approved 320.50 SDR million, Amount Drawn 94.27 SDR million.
- Stand-By, Approval Date 05/29/92, Expiration Date 03/28/93, Amount Approved 314.04 SDR million, Amount Drawn 261.70 SDR million.
- Stand-By, Approval Date 04/11/91, Expiration Date 04/10/92, Amount Approved 380.50 SDR million, Amount Drawn 318.10 SDR million.
- Stand-By, Approval Date 07/07/04, Expiration Date 07/06/06, Amount Approved 250.00 SDR million, Amount Drawn 0.00 SDR million.

Overdue obligations and projected payments to the Fund (SDR million; based on existing use of resources and present holdings of SDRs):
- Charges/interest: 0.03 (2024), 0.03 (2025), 0.03 (2026), 0.03 (2027), 0.03 (2028).
- Total: 0.03 (2024), 0.03 (2025), 0.03 (2026), 0.03 (2027), 0.03 (2028).

Exchange rate arrangement:
- De jure arrangement: managed floating.
- De facto classification: stabilized.
- Romania has accepted the obligations of Article VIII, Section 2(a), 3, and 4 and maintains an exchange rate system free of multiple currency practices and restrictions on making of payments and transfers on current international transactions except for those maintained solely for preservation of national or international security in accordance with UNSC resolutions and that have been notified to the Fund under Executive Board Decision No. 144-(52/51).

Article IV consultations:
- Consultation cycle: 12-month.
- Previous Article IV consultation concluded by the Executive Board on September 21, 2022.

Resident representation:
- Since September 2022 the local Fund office in Bucharest is overseen by the Senior Regional Resident Representative, Mr. Geoff Gottlieb.

### Technical assistance and capacity building
- Focus areas: structural fiscal reforms, modernizing tax administration, strengthening public financial management, and reviewing tax policy options.

Selected technical assistance activities (dates and purposes) provided by FAD and related departments:
- February–March 2022: Addressing VAT non-compliance (virtual).
- March–April 2022: Addressing tax noncompliance by multinational enterprises (virtual).
- March–April 2022: Managing tax risks related to e-commerce/platform economy (virtual).
- March–April 2022: Taxpayer services (virtual).
- July–August 2022: Human Resource Development.
- September–October 2022: Large taxpayer compliance.
- November 2022: High wealth individuals.
- January–February 2023: Compliance risk management training program.
- July–August 2023: Compliance risk management analytical capability (virtual).
- September–October 2023: Remote support preparation TADAT assessment.
- March–April 2022: Strengthening property taxes (virtual).
- May 2022: Improving progressivity of individual income tax.
- January 2023: Property taxes follow-up.
- January 2023: Tax gap integration with CRM (virtual).
- June 2023: Evaluating fiscal regimes of hydrocarbons (royalties).
- March 2022: Public Investment Management Assessment.

### Financial sector assessments and collaborations
- FSAP: A joint IMF-World Bank mission conducted an update assessment of Romania’s financial sector during October 21–November 31, 2017, and January 11–23, 2018. The Financial Sector Assessment Report (FSSA) was discussed at the Board in June 2018.
- Fiscal Transparency Evaluation pilot: took place in February 2014; findings published in March 2015.

Collaborations with other international financial institutions:
- As of October 4, 2023, Romania has collaborations with the World Bank Group, the European Bank for Reconstruction and Development, and the European Investment Bank.

### Statistical issues and data adequacy for surveillance (As of October 31, 2023)
- General assessment: Data provision is adequate for surveillance.

National accounts:
- Quarterly and annual national accounts produced by the National Institute for Statistics (INS) using ESA 2010.
- Estimates reported to the Fund on a timely basis for publication in the International Financial Statistics (IFS).
- Provisional and semi-final versions disseminated in the Statistical Yearbook and on the web (www.insse.ro).

Prices:
- Consumer Price Index is subject to standard annual reweighting and is considered reliable.
- Producer Price Index (PPI) coverage changed in January 2004 to include domestic and export sectors; PPI weights revised every five years with revisions finalized three years after the new base year.

Labor market:
- Labor market statistics are broadly adequate.
- Employment definition consistent with ESA 2010.

Public finances:
- Annual GFS data for general government sector reported on an accrual basis derived from cash data using various adjustment methods.
- Tax revenues adjusted using the time-adjusted cash method; expense data adjusted using due-for-payments data; interest payments calculated on an accrual basis.
- Accrual data available quarterly three months after the end of each quarter.
- EUR receives monthly cash budget execution data.
- Consolidated data on general government operations, financial assets and liabilities reported for inclusion in the IMF GFS annual database.

Monetary and financial statistics:
- National Bank of Romania (NBR) reports monetary and financial statistics using Standardized Report Forms (SRFs).
- SRFs for the central bank and other depository corporations: monthly.
- SRF for Other Financial Corporations (OFCs): quarterly.
- NBR reports key series and indicators of IMF’s Financial Access Survey including gender disaggregated data, mobile money, and the two UN indicators for Target 8.10 (commercial bank branches per 100,000 adults and ATMs per 100,000 adults).

Financial Soundness Indicators (FSIs):
- NBR reports all core and most encouraged FSIs for Deposit Takers quarterly.
- NBR reports FSIs for nonfinancial corporations (NFCs) and households (HHs), and real estate markets.
- FSIs for NFCs are reported with a long lag.

External sector statistics:
- NBR reports quarterly and annual balance of payments and international investment position statistics to the Fund and external debt statistics to the World Bank’s QEDS database in a timely fashion.
- Since September 2014, authorities implemented BPM6.
- Romania participates in CPIS and CDIS and reports IRFCL Data Template.

Data standards and quality:
- Romania is a subscriber to the Fund’s Special Data Dissemination Standard Plus (SDDS Plus) since November 1, 2019.
- A Data ROSC was published in November 2001.

### Table of Common Indicators Required for Surveillance (As of October 2023) — selected entries
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation Aug. 2023; Date received Sept. 2023; Frequency of Data D and M; Frequency of Reporting D and M; Frequency of Publication M.
- Reserve/Base Money: Date of latest observation Aug. 2023; Date received Sept. 2023; Frequency of Data D and M; Frequency of Reporting W and M; Frequency of Publication M.
- Broad Money: Date of latest observation Aug. 2023; Date received Sept. 2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Central Bank Balance Sheet: Date of latest observation Aug. 2023; Date received Sept. 2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Consolidated Balance Sheet of the Banking System: Date of latest observation Aug. 2023; Date received Sept. 2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Interest Rates: Date of latest observation Aug. 2023; Date received Sept. 2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Consumer Price Index: Date of latest observation Sept. 2023; Date received Oct. 2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Revenue, Expenditure, Balance and Composition of Financing—General Government: Date of latest observation Sept. 2023; Date received Oct. 2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation Q3 2023; Date received Oct. 2023; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q.
- External Current Account Balance: Date of latest observation Aug. 2023; Date received Oct. 2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Exports and Imports of Goods and Services: Date of latest observation Aug. 2023; Date received Oct. 2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Gross External Debt: Date of latest observation Aug. 2023; Date received Oct. 2023; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- International Investment Position: Date of latest observation Q2 2023; Date received Aug. 2023; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q.

*Source: Annex VI. Implementation of Past Article IV Recommendations — ROMANIA (as of October 31, 2023).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1rouea2023001.pdf_