{
  "title": "IMF Executive Board Concludes 2021 Article IV Consultation with Romania",
  "publication": "IMF News, August 27, 2021",
  "sourceUrl": "https://www.imf.org/en/news/articles/2021/08/27/pr21249-romania-imf-executive-board-concludes-2021-article-iv-consultation-with-romania",
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  "summary": "The Executive Board concluded the Article IV consultation with Romania on August 26, 2021, and considered and endorsed the staff appraisal without a meeting.",
  "publishDate": "2021-08-27",
  "sections": [
    {
      "heading": "Overview",
      "content": "- The Executive Board concluded the Article IV consultation with Romania on August 26, 2021, and considered and endorsed the staff appraisal without a meeting.\n- The Romanian economy experienced a relatively mild GDP contraction in 2020 (-3.9 percent) compared with the EU average (-6.2 percent), aided by timely fiscal, monetary, and financial policy easing."
    },
    {
      "heading": "Economic performance 2020 and early 2021",
      "content": "- 2020 outcomes:\n  - Real GDP growth: -3.9 percent.\n  - Contributing factors: private consumption and net exports led the decline; gross fixed capital formation continued to expand, supported by a pickup in public investment.\n  - Wage growth slowed substantially; inflation declined into the lower half of the target band.\n  - Fiscal deficit widened to 9.7 percent of GDP to accommodate crisis support (emergency health care expenditures, income support for households, business support).\n- Early 2021 developments:\n  - GDP rebounded sharply, reaching 4.6 percent (Q4 2020) and 2.8 percent (q/q) (Q1 2021), with output in Q1 2021 surpassing the pre-pandemic peak.\n  - Headline inflation increased partly due to higher energy prices; inflation expectations remain well-anchored within the target band.\n  - The current account deficit widened concurrently with the recovery."
    },
    {
      "heading": "Projections and macro outlook",
      "content": "- Short- and medium-term projections:\n  - Real GDP growth projected at 7 percent in 2021, led by private consumption and accompanied by a transitory increase in inflation.\n  - Over the medium term, output is projected to recover to its pre-pandemic trajectory as protracted scarring from the pandemic is expected to be contained.\n  - Public investment is expected to be boosted by a pickup of EU-funded projects, including new resources under the NGEU funds and the EU 2021-27 multiannual budget.\n  - The current account deficit is projected to narrow moderately into the medium term as fiscal consolidation proceeds and growth decelerates toward potential.\n- Risks:\n  - Downside risks remain, including uncertainty about the evolution of the pandemic."
    },
    {
      "heading": "Executive Board assessment and policy recommendations",
      "content": "- Shift pandemic support toward most affected sectors:\n  - Ensure a speedy vaccine rollout as the most important economic policy to address the pandemic, with continued generous fiscal resources.\n  - Reorient pandemic support measures toward the most severely hit sections of the economy and disadvantaged groups.\n  - If the recovery surprises on the upside, authorities should save windfall revenues.\n- Fiscal policy and consolidation:\n  - As the recovery becomes entrenched, fiscal policy should increasingly prioritize rebuilding space for fiscal maneuver.\n  - The 2021 budget appropriately lays the foundation for fiscal consolidation, but significant additional medium-term consolidation will be needed to reduce the deficit to the authorities’ target of 3 percent of GDP.\n  - Broaden the revenue base and strengthen revenue administration to achieve a more equitable tax distribution and improve tax efficiency.\n  - Reprioritize expenditures by boosting public investment while ensuring a sustainable medium-term trajectory for wage and pension spending.\n- Structural and governance reforms:\n  - Re-energize efforts to overcome subpar governance and government effectiveness to continue raising incomes toward average EU levels.\n  - SOE reforms, starting with strengthening corporate governance, would help address governance challenges.\n  - Governance improvements are integral to revenue administration reform and to improving and speeding up public investment.\n  - Strengthen the anti-corruption framework and ensure robust implementation, including of the AML/CFT framework.\n- Use of EU funds:\n  - Take full advantage of RRF grants and EU structural funds, with a total envelope of 20 percent of GDP over the next six years.\n  - Successful implementation of RRF reform commitments and investment projects would boost medium-term growth prospects.\n  - Use RRF focus on digitalization to support modernizing tax administration and to jumpstart climate-change efforts."
    },
    {
      "heading": "Monetary and financial sector guidance",
      "content": "- Monetary stance:\n  - The National Bank of Romania (NBR) should sustain monetary and financial accommodation to support the recovery and cushion the impact of fiscal consolidation, while monitoring inflationary risks.\n- Financial stability and bank asset quality:\n  - If bank asset quality deteriorates, the NBR should balance an accommodating stance with prudential concerns.\n  - Preparations should be in place to handle potential deterioration in bank asset quality once relief measures expire and to ensure efficient insolvency procedures.\n- Exchange rate policy:\n  - Once the crisis recedes, exchange rate flexibility should be gradually increased to absorb external shocks and help address the current account deficit."
    },
    {
      "heading": "Key economic indicators (selected, as reported)",
      "content": "- Population: 19.3 million (2020)\n- Per capita GDP: US$12,854 (2020)\n- Quota: 1,811 million SDRs (0.4% of total)\n- Literacy rate: 99% (2019)\n- People at risk of poverty: 31.2% (2019)\n- 2019, 2020, 2021, 2022 (Proj.) — Selected series:\n  - Real GDP growth (%): 4.1; -3.9; 7.0; 4.8\n  - Output gap (%): 3.0; -2.4; -1.0; 0.0\n  - Unemployment (%): 3.9; 5.0; 4.9\n  - CPI inflation (%, period average): 3.8; 2.6; 3.6; 2.7\n  - General government revenue (% GDP): 28.9; 30.3; 30.0\n  - General government expenditure (% GDP): 33.5; 38.6; 37.1; 35.8\n  - Fiscal balance (% GDP): -4.6; -9.7; -6.8; -5.8\n  - Primary balance (% GDP): -3.5; -8.4; -5.3; -4.2\n  - Structural fiscal balance 1/ (% GDP): -5.1; -6.1; -5.5; -5.6\n  - Public debt (including guarantees) (% GDP): 36.8; 49.8; 51.5; 53.5\n  - Broad money (% change): 10.9; 15.3; 10.2; 9.5\n  - Credit to the private sector (% change): 6.6; 5.5; 9.7; 7.9\n  - Policy rate (%): 2.5; 1.5; …\n  - Current account (% GDP): -4.9; -5.2; -5.4\n  - FDI (% GDP): -2.2; -0.9; -1.6; -1.7\n  - Reserves (months imports): 4.5\n  - External debt (% GDP): 49.2; 57.7; 57.6\n  - REER (% change): 2.4\n- Note: 1/ Fiscal balance (cash basis) adjusted for the automatic effects of the business cycle and one-off effects.\n\nIMF Executive Board Concludes 2021 Article IV Consultation with Romania — August 27, 2021\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- IMF COVID-19 Hub\n- Policy Tracker\n- Financial Assistance\n- Questions & Answers\n- Romania and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/08/27/pr21249-romania-imf-executive-board-concludes-2021-article-iv-consultation-with-romania"
    }
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    "Published: August 27, 2021",
    "The Executive Board concluded the Article IV consultation with Romania on August 26, 2021, and considered and endorsed the staff appraisal without a meeting.",
    "The Romanian economy experienced a relatively mild GDP contraction in 2020 (-3.9 percent) compared with the EU average (-6.2 percent), aided by timely fiscal, monetary, and financial policy easing.",
    "2020 outcomes:",
    "Early 2021 developments:",
    "Short- and medium-term projections:",
    "Risks:",
    "Shift pandemic support toward most affected sectors:",
    "Fiscal policy and consolidation:",
    "Structural and governance reforms:",
    "Use of EU funds:",
    "Monetary stance:",
    "Financial stability and bank asset quality:",
    "Exchange rate policy:",
    "Population: 19.3 million (2020)",
    "Per capita GDP: US$12,854 (2020)",
    "Quota: 1,811 million SDRs (0.4% of total)",
    "Literacy rate: 99% (2019)",
    "People at risk of poverty: 31.2% (2019)",
    "2019, 2020, 2021, 2022 (Proj.) — Selected series:",
    "Note: 1/ Fiscal balance (cash basis) adjusted for the automatic effects of the business cycle and one-off effects.",
    "[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)",
    "[IMF COVID-19 Hub](https://www.imf.org/en/Topics/imf-and-covid19)",
    "[Policy Tracker](https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19)",
    "[Financial Assistance](https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker)",
    "[Questions & Answers](https://www.imf.org/en/About/FAQ/imf-response-to-covid-19)",
    "[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/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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