{
  "title": "IMF Executive Board Concludes Article IV Consultation with Romania",
  "publication": "IMF News, August 30, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/08/29/pr19321-romania-imf-executive-board-concludes-article-iv-consultation",
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  "summary": "1/ Fiscal balance (cash basis) adjusted for the automatic effects of the business cycle and one-off effects.",
  "publishDate": "2019-08-30",
  "sections": [
    {
      "heading": "Executive summary and Board assessment",
      "content": "- On August 28, 2019 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Romania.\n- Directors welcomed strong economic growth and low unemployment but raised concerns about widening current account and fiscal deficits, renewed inflation, lagging structural reforms, and subdued investment.\n- Directors called for shifting from procyclical to countercyclical fiscal policy, complemented by a tighter monetary policy stance and greater exchange rate flexibility.\n- Directors supported strengthening policy predictability and renewing structural reform initiatives to sustain convergence to average EU income levels."
    },
    {
      "heading": "Recent developments and outlook",
      "content": "- 2018 outcomes:\n  - Growth in 2018 was strong, reflecting pro-cyclical fiscal policy and rapid wage increases.\n  - Unemployment reached record lows and the financial sector is stable.\n  - Fiscal deficit: 2.8 percent of GDP in 2018.\n  - Current account deficit: 4.5 percent of GDP in 2018.\n  - National Bank of Romania’s (NBR) inflation target was met in 2018, but headline inflation exceeded the target band since February 2019.\n  - Structural reform agenda remains stalled and investment growth lagged broader economic activity.\n- Growth and inflation outlook:\n  - Growth in 2019 is expected to stay above potential at 4 percent, led by continued fiscal stimulus and strong wage growth, with further widening of current account and fiscal deficits.\n  - Inflation in 2019 is expected to stay above the NBR’s target band.\n  - Growth is expected to moderate to 3 percent in the medium term as transitory effects of fiscal stimulus fade.\n  - Lack of progress on structural reforms and subdued investment will constrain potential growth over the medium term."
    },
    {
      "heading": "Risks and buffers",
      "content": "- Key domestic risk: increased vulnerability from policy shocks, including further fiscal stimulus or regressions on structural reforms.\n- Key external risk: a sharper-than-expected external slowdown that would widen the current account deficit and magnify financing pressures.\n- Buffers:\n  - Romania’s moderate public debt and reserves can provide a temporary cushion, but these buffers could be insufficient under an adverse event."
    },
    {
      "heading": "Policy recommendations (Executive Directors’ guidance)",
      "content": "- Fiscal policy:\n  - Implement durable fiscal consolidation to curb twin deficits and reduce the burden on monetary policy.\n  - Pursue sustained fiscal reforms to achieve consolidation over the medium term and improve budget composition.\n  - Support meeting this year’s budget target with quality measures, including shifting expenditures away from rigid spending—such as wages and pensions—towards investment, reversing the trend of declining public investment.\n  - Subject the new pension law to a comprehensive review to ensure fiscal sustainability and balance social, equity, and investment needs in line with available fiscal space.\n  - Modernize revenue administration by upgrading IT systems and improving compliance risk management.\n  - Improve expenditure efficiency and transparency through stronger expenditure reviews and procurement process reforms.\n- Monetary policy and exchange rate:\n  - Support further monetary policy tightening given continuing inflation pressures.\n  - Encourage action beyond tight liquidity management to rein in inflation and bolster central bank credibility and independence.\n  - Increase exchange rate flexibility to help absorb shocks.\n- Financial sector and regulatory:\n  - Continue efforts to strengthen financial stability and sustain progress on implementing the 2018 FSAP recommendations.\n  - Increase resilience to risks from high bank exposure to the Romanian state.\n  - Closely monitor the new tax on bank assets due to potential impacts on monetary policy transmission and credit allocation.\n  - Ensure the new AML/CFT legislation is followed by robust implementation.\n- Structural reforms:\n  - Re-energize structural reform agenda to improve medium-term growth prospects.\n  - Increase public investment focusing on infrastructure and improve absorption of EU funds.\n  - Advance state-owned enterprise reform to improve quality of public goods and services.\n  - Moderate minimum wage hikes and link changes to objective criteria reflecting productivity.\n  - Renew anti-corruption efforts to alleviate growth constraints, enhance competitiveness, and facilitate investment."
    },
    {
      "heading": "Key statistics and projections (Romania: Selected Economic Indicators, 2017–20)",
      "content": "- Population: 19.6 million (2018)\n- Per capita GDP: US$12,301 (2018)\n- Quota: 1,811 million SDRs (0.4% of total)\n- Literacy rate: 99%\n- People at risk of poverty: 35.7% (2017)\n- Key export markets: European Union (Germany, Italy, France)\n- Main products and exports: Machinery and transport equipment, manufactured goods\n\n- Output\n  - Real GDP growth (%): 7.0 (2017), 4.1 (2018), 4.0 (2019), 3.5 (2020)\n  - Output gap (%): 1.8 (2017), 2.1 (2018), 2.4 (2019), … (2020 not reported)\n- Employment\n  - Unemployment (%): 4.9 (2017), 4.2 (2018), 4.3 (2019), 4.6 (2020)\n- Prices\n  - CPI inflation (%, period average): 1.3 (2017), 3.3 (2018), … (2019–20 not fully reported)\n- General government finances (% GDP)\n  - Revenue: 28.0 (2017), 29.4 (2018), 29.8 (2019), 30.5 (2020)\n  - Expenditure: 30.8 (2017), 32.2 (2018), 33.5 (2019), 34.0 (2020)\n  - Fiscal balance: -2.8 (2017), -3.7 (2018), -3.5 (2019), … (2020 primary balance reported)\n  - Primary balance: -1.7 (2017), -1.5 (2018), -2.3 (2019), -2.1 (2020)\n  - Structural fiscal balance1/: -3.6 (2017), -4.1 (2018), -4.0 (2019)\n  - Public debt (including guarantees): 36.9 (2017), 36.7 (2018), 37.4 (2019), 38.6 (2020)\n- Money and credit\n  - Broad money (% change): 11.5 (2017), 8.8 (2018), 12.0 (2019), 9.0 (2020)\n  - Credit to the private sector (% change): 5.7 (2017), 8.0 (2018), 8.1 (2019), 6.5 (2020)\n  - Policy rate (%): 1.75 (2017), 2.5 (2018)\n- Balance of payments\n  - Current account (% GDP): -3.2 (2017), -4.5 (2018), -5.5 (2019), -5.2 (2020)\n  - FDI (% GDP): -2.6 (2017), -2.5 (2018), -2.4 (2019)\n  - Reserves (months imports): 3.9 (2017), 3.7 (2018)\n  - External debt (% GDP): 49.8 (2017), 48.1 (2018), 47.3 (2019), 46.5 (2020)\n  - Exchange rate REER (% change): 2.0 (2017), 4.4 (2018)\n\n1/ Fiscal balance (cash basis) adjusted for the automatic effects of the business cycle and one-off effects.\n\nIMF Press Release No. 19/321 — IMF Communications Department; August 30, 2019.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Romania and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/08/29/pr19321-romania-imf-executive-board-concludes-article-iv-consultation"
    }
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    "Published: August 30, 2019",
    "On August 28, 2019 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Romania.",
    "Directors welcomed strong economic growth and low unemployment but raised concerns about widening current account and fiscal deficits, renewed inflation, lagging structural reforms, and subdued investment.",
    "Directors called for shifting from procyclical to countercyclical fiscal policy, complemented by a tighter monetary policy stance and greater exchange rate flexibility.",
    "Directors supported strengthening policy predictability and renewing structural reform initiatives to sustain convergence to average EU income levels.",
    "2018 outcomes:",
    "Growth and inflation outlook:",
    "Key domestic risk: increased vulnerability from policy shocks, including further fiscal stimulus or regressions on structural reforms.",
    "Key external risk: a sharper-than-expected external slowdown that would widen the current account deficit and magnify financing pressures.",
    "Buffers:",
    "Fiscal policy:",
    "Monetary policy and exchange rate:",
    "Financial sector and regulatory:",
    "Structural reforms:",
    "Population: 19.6 million (2018)",
    "Per capita GDP: US$12,301 (2018)",
    "Quota: 1,811 million SDRs (0.4% of total)",
    "Literacy rate: 99%",
    "People at risk of poverty: 35.7% (2017)",
    "Key export markets: European Union (Germany, Italy, France)",
    "Main products and exports: Machinery and transport equipment, manufactured goods",
    "Output",
    "Employment",
    "Prices",
    "General government finances (% GDP)",
    "Money and credit",
    "Balance of payments",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[Romania and the IMF](http://www.imf.org/external/country/ROU/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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