{
  "title": "IMF Executive Board Concludes 2023 Article IV Consultation with Romania",
  "publication": "IMF News, December 8, 2023",
  "sourceUrl": "https://www.imf.org/en/news/articles/2023/12/07/pr23427-romania-imf-exec-board-concludes-2023-art-iv-consult",
  "canonical": "https://www.imf.org/en/news/articles/2023/12/07/pr23427-romania-imf-exec-board-concludes-2023-art-iv-consult",
  "overlayPath": "/en/news/articles/2023/12/07/pr23427-romania-imf-exec-board-concludes-2023-art-iv-consult/index.md",
  "summary": "The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Romania, and considered and endorsed the staff appraisal without a meeting.",
  "publishDate": "2023-12-08",
  "sections": [
    {
      "heading": "Recent economic developments",
      "content": "- Romania has weathered shocks from the pandemic and Russia’s war in Ukraine relatively well.\n- Growth:\n  - 2022: 4.7 percent (surprised on the upside).\n  - First half of 2023: slowed to around 1.9 percent y/y due to weakened consumption and subdued external demand.\n- Inflation:\n  - Peak: 16.8 percent y/y in November 2022.\n  - September 2023: 8.8 percent y/y.\n  - Drivers of decline: base effects, price caps on energy, receding energy and food prices, easing supply bottlenecks, and monetary tightening.\n- Investment: public and private investment has accelerated further.\n- Financial sector: remains robust, though corporate FX borrowing has increased.\n- Fiscal position:\n  - Structural spending has increased since 2019 without offsetting revenue increases.\n  - Fiscal consolidation stalled in 2023.\n- Current account and reserves:\n  - Current account deficit remains large but is declining and largely driven by direct investment flows and rising inflows of EU funds.\n  - International reserves have increased significantly."
    },
    {
      "heading": "Outlook and projections",
      "content": "- Growth projections:\n  - 2023: projected at 2¼ percent.\n  - 2024: projected around 2¾ percent (modest recovery as stronger consumption—driven by rising real wages—and external demand are partially countered by the necessary fiscal consolidation).\n  - Medium term: expected to return to potential around 3¾ percent as consumption and exports recover and investment (underpinned by RRF funds) remains strong.\n- Inflation:\n  - Projected to return inside the NBR’s target band in early 2025, helped by weaker economic growth and falling food and energy prices (which comprise almost half of the consumption basket).\n- Fiscal projections:\n  - Staff projects the deficit in 2023 at 6 percent of GDP.\n  - 2024: without further fiscal measures, deficit forecast to fall to slightly above 5 percent of GDP.\n- Current account medium-term projection:\n  - Projected to narrow moderately to around 6 percent of GDP owing to fiscal adjustment and—near the end of the projection horizon—declining EU capital grants."
    },
    {
      "heading": "Executive Board assessment — key findings",
      "content": "- Overall performance:\n  - Romania’s economy has performed relatively well in difficult times; growth remains fairly robust and higher than most peers.\n  - Inflation, after peaking at lower levels than in CESEE peers, remains too high but is receding gradually.\n  - Convergence to Western European income levels is continuing.\n- External position:\n  - Romania’s external position in 2022 was substantially weaker than the level implied by fundamentals and desirable policies (assessment subject to considerable uncertainty).\n- Risks:\n  - Escalation of the war in Ukraine, further weakening of activity across Europe, or an abrupt global slowdown could undermine growth and capital flows.\n  - Prolonged strong wage growth could delay the projected fall in core inflation.\n  - The electoral calendar could make fiscal consolidation and structural reforms in 2024 difficult to achieve.\n- Fiscal vulnerability:\n  - A structural budget deficit well in excess of sustainable levels limits scope to respond to adverse developments.\n  - Continued efforts to improve expenditure efficiency and tax collection are needed; revenues must be increased given spending pressures to address relative poverty and raise productivity."
    },
    {
      "heading": "Policy recommendations and priorities",
      "content": "- Fiscal policy and tax reform:\n  - The recently adopted fiscal package provides welcome improvements in tax policy and should help reduce the fiscal deficit somewhat in 2024, but more is needed.\n  - The reduction of some tax exemptions is a step forward; some measures—particularly the new turnover taxes—are not in line with good practice and should be reconsidered.\n  - Further tax reforms to raise at least 2 percent of GDP in additional revenue beyond the gains from the recent tax package are needed to place the fiscal deficit on a sustainable medium-term trajectory while ensuring all taxpayers pay their fair share.\n  - Streamlining VAT and personal income taxes (including closing loopholes and removing tax privileges) should be key elements; once achieved, consideration should be given to re-introduce progressive income taxation.\n  - Tax and expenditure policies should become more predictable; announcing further tax reforms well in advance will help companies and households adjust.\n  - Spending on pensions and public sector wages should be set on a sustainable formula-based trajectory, as envisaged in the NRRP.\n  - The new draft pension law would help reduce spending over the longer run but generate upfront fiscal costs; a gradual phase-in and prudent implementation are needed to avoid jeopardizing deficit reduction.\n- Monetary policy:\n  - 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.\n  - The monetary authorities should be ready to tighten policy if upside risks to core inflation materialize.\n- Exchange rate policy:\n  - The episode of higher exchange rate volatility presents an opportunity to gradually increase two-way exchange rate flexibility over the medium term to reduce destabilizing capital flow risks, raise monetary policy effectiveness, and enhance resilience to shocks.\n  - Any move should be gradual to preserve confidence gains; enhanced data on inflation expectations would support calibration.\n- Financial sector and AML/CFT:\n  - Emerging financial risks (including increased corporate FX borrowing) warrant close scrutiny.\n  - The turnover tax on banks could, if maintained for an extended period, weaken banks’ financial buffers and already-low financial intermediation.\n  - Improvements to the AML/CFT system should be swiftly implemented; authorities should compile an overarching AML/CFT strategy.\n- Structural policies to boost growth and convergence:\n  - Make the most of available EU support to finance investment and support reform implementation.\n  - Governance reforms to enhance administrative capacity and transparency, fight corruption, and make SOEs more efficient are critical to reinforce investment attractiveness and counteract continued (though declining) net outmigration.\n  - Raise labor force participation to mitigate effects of a falling population, with focus on increasing opportunities for women in the formal labor force and improving education outcomes.\n- Green transition:\n  - Reducing GHG emissions in line with EU and updated NECP targets is challenging, especially in transport and housing.\n  - The transition requires large, coordinated investments and complementary policies to mitigate social impacts: disincentivize carbon emissions (including through taxation) while shielding low-income households.\n  - Scheduled coal mine closures require special efforts for compensation and new opportunities for affected households.\n  - Romania’s large potential for renewable energy offers opportunities to benefit from decarbonization and become more competitive in green value chains."
    },
    {
      "heading": "Selected economic indicators and key statistics (as reported)",
      "content": "- Population (million): 19.0\n- Per capita GDP ($): 15,791\n- Quota (m SDRs/% of total): 1,811 (0.4%)\n- Literacy rate (%): 98.9\n- Poverty rate (%) 1/: 21.2\n- Key export markets: EU (Germany, France, Italy)\n- Main products and exports: Machinery and transport equipment, manufactured goods\n\n- Annual indicators (2021 / 2022 / 2023 / 2024 projections)\n  - Real GDP (% change): 5.7 / 4.6 / 2.2 / 2.7\n  - Unemployment (% labor force): 5.6\n  - Consumer prices (avg): 5.0 / 13.8 / 10.5 / 5.8\n  - Consumer prices (eop): 8.2 / 16.4 / 7.4 / 4.4\n  - General government revenue (% GDP): 30.4 / 31.0 / 31.9\n  - General government expenditure (% GDP): 37.1 / 36.8 / 37.9 / 37.0\n  - Net lending/borrowing (% GDP): -6.7 / -5.8 / -6.0 / -5.1\n  - Structural balance (% GDP): -7.4 / -5.7 / -5.6 / -4.8\n  - Structural primary balance (% GDP): -5.9 / -3.7 / -3.2 / -2.6\n  - Gross debt (% GDP): 51.7 / 50.5 / 51.6 / 52.2\n  - Broad money (% change): 15.8 / 6.9 / 13.6 / 10.0\n  - Credit to the private sector (% change): 14.8 / 12.1 / 6.3\n  - Policy rate (eop, %): 1.75 / 6.75 / …\n  - Current account (% GDP): -7.2 / -9.3 / -6.9\n  - Direct investment, net (% GDP): -3.4 / -3.0 / -3.3\n  - International reserves (months of prospective imports): 3.9 / 4.3 / 4.7\n  - External debt (% GDP): 56.5 / 50.6 / 51.2\n  - REER (% change): 1.0 / 3.7\n\nSource: IMF Executive Board Concludes 2023 Article IV Consultation with Romania (Press Release No. 23/427).\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/2023/12/07/pr23427-romania-imf-exec-board-concludes-2023-art-iv-consult"
    }
  ],
  "bullets": [
    "[Markdown version](/en/news/articles/2023/12/07/pr23427-romania-imf-exec-board-concludes-2023-art-iv-consult/index.md)",
    "[Structured JSON version](/en/news/articles/2023/12/07/pr23427-romania-imf-exec-board-concludes-2023-art-iv-consult/index.json)",
    "[Bundle manifest](/en/news/articles/2023/12/07/pr23427-romania-imf-exec-board-concludes-2023-art-iv-consult/bundle-manifest.json)",
    "Published: December 8, 2023",
    "Romania has weathered shocks from the pandemic and Russia’s war in Ukraine relatively well.",
    "Growth:",
    "Inflation:",
    "Investment: public and private investment has accelerated further.",
    "Financial sector: remains robust, though corporate FX borrowing has increased.",
    "Fiscal position:",
    "Current account and reserves:",
    "Growth projections:",
    "Inflation:",
    "Fiscal projections:",
    "Current account medium-term projection:",
    "Overall performance:",
    "External position:",
    "Risks:",
    "Fiscal vulnerability:",
    "Fiscal policy and tax reform:",
    "Monetary policy:",
    "Exchange rate policy:",
    "Financial sector and AML/CFT:",
    "Structural policies to boost growth and convergence:",
    "Green transition:",
    "Population (million): 19.0",
    "Per capita GDP ($): 15,791",
    "Quota (m SDRs/% of total): 1,811 (0.4%)",
    "Literacy rate (%): 98.9",
    "Poverty rate (%) 1/: 21.2",
    "Key export markets: EU (Germany, France, Italy)",
    "Main products and exports: Machinery and transport equipment, manufactured goods",
    "Annual indicators (2021 / 2022 / 2023 / 2024 projections)",
    "[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)"
  ],
  "alternates": {
    "markdown": "/en/news/articles/2023/12/07/pr23427-romania-imf-exec-board-concludes-2023-art-iv-consult/index.md",
    "json": "/en/news/articles/2023/12/07/pr23427-romania-imf-exec-board-concludes-2023-art-iv-consult/index.json",
    "bundleManifest": "/en/news/articles/2023/12/07/pr23427-romania-imf-exec-board-concludes-2023-art-iv-consult/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-26T02:34:06.418Z"
}