## IMF Executive Board Concludes 2022 Article IV Consultation with Romania

_IMF News, September 26, 2022_

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## Bibliographic details
- Published: September 26, 2022

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### Background and current situation
- On September 21, 2022, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Romania.
- After a solid recovery from the pandemic, Romania faces headwinds related to the war in Ukraine, with further spillovers due to its proximity.
- Output had reached pre-crisis levels in H1 2021 and growth in H1 2022 remained strong.
- Headline inflation has risen rapidly, driven primarily by the energy price shock and its impact on associated goods and services; inflation expectations have risen more moderately but are also above the target band (1.5­-3.5 percent).
- The labor market remains less tight than pre-pandemic levels.
- The authorities implemented an energy price cap and subsidy scheme to help alleviate pressures on the economy and the vulnerable.

### Macroeconomic outlook and projections
- GDP growth is expected to moderate to 4¾ percent in 2022 (2021: 5.9 percent), supported mainly by momentum in domestic demand.
- Energy and food prices are expected to keep inflation relatively elevated until the end of 2023.
- The fiscal deficit narrowed in 2021 after the pandemic-induced widening and is projected to consolidate moderately further in 2022 as nominal revenue growth has been strong.
- The current account deficit is projected to remain elevated, but the rebound in FDI and the start of the EU-supported National Recovery and Resilience Plan provide substantial funding.

### Executive Board assessment and key policy recommendations
- Executive Directors welcomed Romania’s strong recovery but noted spillovers from Russia’s war in Ukraine and tighter financial conditions that cloud the outlook with downside risks and higher uncertainty.
- Directors underscored the importance of implementing prudent macroeconomic policies to safeguard macroeconomic stability and reenergizing structural reforms to boost economic growth.
- Fiscal policy:
  - Pursue medium-term fiscal consolidation to rebuild buffers, safeguard fiscal sustainability, and reduce external imbalances.
  - Current energy price caps should be temporary; gradually phase them out and replace them with measures targeting the most vulnerable.
  - Recommend reforms to pensions and public sector wages to improve medium-term budgeting and ensure predictability.
  - While welcoming recent tax measures, consider a more ambitious reform of the personal income tax and improvements to the efficiency of the value added tax.
- Monetary and exchange rate policy:
  - Monetary policy needs to stay nimble to firmly guide inflation and inflation expectations back toward the central bank’s target.
  - Policy rates will need to rise further to prevent the entrenching of inflationary pressures and the emergence of a wage-price spiral.
  - Encourage gradually moving toward a more flexible exchange rate to help address external imbalances and absorb potential future external shocks, together with fiscal consolidation.
- Financial sector and governance:
  - The banking sector remains resilient and the macroprudential stance is appropriate.
  - Call for continued vigilance of financial stability risks and for further strengthening the AML/CFT framework.
  - Reenergize structural reforms to boost growth and address regional inequalities; emphasize implementing Romania’s National Recovery and Resilience Plan and strengthening public investment management.
  - Prioritize reforms in green transition and energy security, digitalization, health and education, governance, and anticorruption.

### Key statistics and selected economic indicators (as reported)
- Population: 19.3 million (2020)
- Per capita GDP: US$14,667 (2021)
- Quota: 1,811 million SDRs (0.4% of total)
- Literacy rate: 99% (2019)
- People at risk of poverty: 31.2% (2019)
- Key export markets: European Union (Germany, Italy, France)
- Main products and exports: Machinery and transport equipment, manufactured goods

- Selected time series (2020 / 2021 / 2022 / 2023 Proj.):
  - Real GDP growth (%): -3.7 / 5.9 / 4.8 / 3.4
  - Output gap (%): -2.3 / -0.6 / 0.2 / 0.0
  - Unemployment (%): 6.0 / 5.6 / 5.7 / 5.5
  - CPI inflation (%, period average): 2.6 / 5.0 / 13.3 / 10.0
  - General government revenue (% GDP): 28.8 / 30.6 / 31.4
  - General government expenditure (% GDP): 38.6 / 37.5 / 38.2 / 35.7
  - Fiscal balance (% GDP): -9.8 / -6.9 / -6.4 / -5.1
  - Primary balance (% GDP): -8.5 / -5.4 / -5.2 / -3.4
  - Structural fiscal balance 1/ (% GDP): -5.3 / -7.6 / -6.1 / -4.9
  - Public debt (including guarantees) (% GDP): 49.6 / 51.4 / 51.7 / 52.0
  - Broad money (% change): 15.3 / 15.8 / 15.1 / 12.5
  - Credit to the private sector (% change): 14.8 / 17.2 / 12.8
  - Policy rate (%): 1.5 / 1.75 / …
  - Current account (% GDP): -5.0 / -7.0 / -7.7 / -7.4
  - FDI (% GDP): -1.4 / -3.0 / -2.5 / -2.7
  - Reserves (months imports): 4.6 / 4.2 / 3.6 / 3.1
  - External debt (% GDP): 57.9 / 55.9 / 52.2 / 51.0
  - REER (% change), CPI based: 0.9

1/ Fiscal balance (cash basis) adjusted for the automatic effects of the business cycle and one-off effects.

*IMF Communications Department — Press Release No. 22/320 (September 26, 2022).*

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## References

- [Romania and the IMF](http://www.imf.org/external/country/ROU/index.htm)
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_Source: https://www.imf.org/en/news/articles/2022/09/23/pr22320-romania-imf-executive-board-concludes-2022-article-iv-consultation_