Romania needs fiscal consolidation, tighter monetary policy
The International Monetary Fund (IMF) on Friday said Romania needs fiscal consolidation complemented by monetary tightening and a greater exchange rate flexibility.
While consumption-led growth has remained strong, raising people’s incomes toward those in advanced Europe, macroeconomic imbalances have also deepened as fiscal and current account deficits have widened and inflation pressure is rising again, the IMF said at the end of its visit in Romania aimed at evaluating the state of the country's economy, the IMF resident representative office said.
"Unless policies change course, the progress in convergence could suffer a setback that hurts the real incomes of retirees and poor people particularly hard. A more balanced policy mix is needed to reduce the likelihood of such a setback: first and foremost, fiscal consolidation complemented by monetary tightening and greater exchange rate flexibility," the IMF said.
Also, policies need to become more predictable and governance improve to enhance the medium-run prospects of income convergence, it added.
Durable fiscal consolidation based on high quality measures, starting this year, is paramount to put the economy on a more resilient footing, the staff report showed.
The IMF also stressed that a greater predictability and medium-term orientation of policies would generate positive dividends for investment and growth.
The IMF mission led by Jaewoo Lee visited Bucharest during May 27-June 7 to conduct the 2019 Article IV consultation discussions.
Currently, Romania has no ongoing funding agreement with the IMF.
Romania's real gross domestic product (GDP) growth is projected to reach 3.1% in 2019 before decelerating to 3% in 2020, the IMF said in the April edition of its World Economic Outlook report.