An International Monetary Fund (IMF) staff team led by Jaewoo Lee visited
Bucharest during November 6-12, 2018, to discuss recent macroeconomic and
policy developments.
At the end of the mission, Mr. Lee issued the following statement:
“Economic activity in Romania remains strong with unemployment at a
record low.
Concerns about overheating have lessened with a recent slowdown in activity
and inflation pressures for the year appear to have peaked. The National
Bank of Romania has tightened monetary policy and liquidity management,
helping contain inflation pressures. Going forward, a tightening bias in
monetary policy should be maintained to anchor inflation expectations and
contain external risks. The financial system’s health has improved, and the
cap on debt service to income on household loans should help maintain
financial stability.
“Fiscal consolidation would enhance room for fiscal policy maneuver,
thereby reducing the economy’s vulnerability to domestic and external
shocks.
Despite several years of strong growth, the budget deficit has gone up
rather than down, as it should during good times, and the 2018 target
remains at risk without further measures. At the same time, spending
composition is increasingly skewed towards rigid items to the detriment of
public investment. The 2019 budget and medium-term fiscal framework need to
target smaller deficits in line with European Union (EU) commitments and
keep public debt-to-GDP ratio on a downward trend. This necessitates high
quality measures. In this regard, current initiatives to improve public
spending efficiency—expenditure reviews and a centralized procurement—are
welcome. It is also critical to modernize the revenue administration.
Furthermore, increases in public wage and planned changes to pension
benefits should be reassessed for their negative implications for fiscal
sustainability and long-term growth.
“Well-targeted structural reforms and strong governance are needed to
raise growth potential.
Strengthening public investment institutions remains a priority to help
address Romania’s large infrastructure gap, including by facilitating
higher absorption of EU funds. The corporate governance of state-owned
enterprises can be improved, and exemptions to Law 111/2016 should be
avoided. The envisaged sovereign investment fund should follow
international best practices. Romania’s fight against corruption should
continue, as reducing corruption helps improve government revenue, enhance
spending efficiency, and strengthen competitiveness. Several recent
legislative initiatives have created uncertainty, giving rise to concerns
about good governance and the financial system, which are a basis for
sustained long-term growth.
“The mission held fruitful discussions with the Minister of Public Finance
Eugen Teodorovici, National Bank of Romania Governor Mugur Isărescu, and
other government officials, representatives from the private sector, and
civil society organizations. The mission thanks the authorities for their
hospitality.”
