IMF Staff Country Reports

This 2023 Article IV Consultation discusses that Romania has weathered the economic shocks from the pandemic, Russia’s war in Ukraine, and the resulting surges in energy and food prices relatively well. Growth is expected to recover modestly in 2024, and to return to its potential rate in the medium term, but there are substantial risks. A weak fiscal position renders Romania vulnerable. The scope to respond to adverse developments is circumscribed by a structural budget deficit well in excess of sustainable levels. The recently adopted fiscal package offers welcome improvements in tax policy and should help reduce the fiscal deficit somewhat in 2024; but more will be needed. Announcing further tax reforms well in advance will help companies and households adjust to these changes. In addition, 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. There is significant room to underpin real income growth and further convergence with Western Europe. This requires investment in physical infrastructure as well as people, and strengthening the efficiency of the state.