IMF official warns: Romania is on the verge of repeating past mistakes

Romania must take measures to ensure a sustainable economic growth for some decades, not only from year to year, and an advance of 3.5 percent per year for ten years, Jeffrey Franks (photo), IMF representative to the European Union and former IMF chief negotiator for Romania, believes.

According to him, this reasoning is preferred against a GDP growth of 4 5 percent per year for five years, followed then by an economic crisis.

“This is the danger that Romania faces now!” IMF official warns, attending a debate organized by the Ministry of Public Finance (MFP) in Bucharest on Tuesday.

According to him, Romania’s economy can grow even by 4 percent annually, but for this increase to be sustainable, the authorities should stimulate investments, go up the absorption rate of European funds and solve problems in state companies through privatization or by other ways to attract private capital.

Moreover, Franks pointed out that Romania is on the verge of repeating past mistakes.

“The economic growth in Romania is not so great now as it was in the pre-crisis period. (…) The question now is whether some of the steps that have been taken in fees and salaries last year lead to maintaining stability or come into contradiction with it,” IMF representative to EU explained.

In this context, he was referring to measures to stimulate economic growth when it is already strong, instead of reserves establishment for more difficult periods.

In his turn, the current IMF mission head for Romania, Reza Baqir, said that tax measures approved by the Romanian authorities are procyclical and will increase public debt and those that will come into effect next year should be canceled or postponed in order to make budget savings and to restore the public debt on a downward trend.

According to him, it can be achieved savings of 1.5 percent of GDP from the wages reform. There also can be made savings on capital expenditures, because these are higher in Romania than in other segments, but the quality of infrastructure resulting from these charges is low.

“Investment planning should be based on satisfactory risk assessments and then a commitment control system must be implemented for all state entities to avoid the problems of budget execution,” Reza Baqir stated.

Also, IMF mission head for Romania draws attention on the evolution of budget execution throughout the year, which could influence the quality of expenditure.