The Romanian economy is projected to continue to grow above potential in 2018. GDP will likely expand by around 5.1 percent in 2018, driven by the fiscal stimulus and aided by a resurgent EU, says a new World Bank (WB) report.
Continued growth in consumption is expected to widen the current account deficit to 4.3 percent in 2018. Inflation is set to peak at around 5 percent in mid-2018 reflecting the excess domestic demand and the fading out of the base effect of the tax cuts, the financial institution notes.
The fiscal measures passed in 2017 have put pressure on the consolidated budget deficit.
”In the absence of corrective measures, the fiscal deficit is projected to reach 3.3 percent of GDP in 2018, which would place Romania on a trajectory to reentering the Excessive Deficit Procedure of the EU. However, the government has stated that, like in 2017, it would be ready to promote adjustment measures should the deficit threaten the 3 percent ceiling,” WB shows.
The widening of the fiscal deficit would push public debt to 46.8 percent of GDP at end-2020, from 44.5 percent in 2017. Despite this, public debt remains one of the lowest in the EU.
According to WB, strong private consumption aided by the expansionary fiscal policy and continued growth in real wages, partly supported by minimum wage increases, should boost real incomes and lead to further declines in poverty incidence. Moreover, the planned introduction of the Minimum Social Inclusion Income program (MSII) is expected to improve targeting and increase the level of benefits for the most vulnerable.
The USD 5.50/day 2011 PPP poverty rate is projected to decline to 22.6 percent in 2018, 21.7 percent in 2019, and 20.9 percent in 2020.
”Accumulating fiscal pressures and excess domestic demand limit the space for policy-makers to maneuver in 2018 and beyond. The current account deficit is on the rise, and inflationary pressures persist.
These developments leave the Romanian economy vulnerable to exogenous shocks. The authorities may need to take corrective measures to keep the deficit below 3 percent of GDP in 2018 through good quality fiscal adjustment,” WB experts warn.
Reforms in public administration and SOEs, increased regulatory predictability, as well as policies to address the large social and spatial discrepancies should be on Gov’t agenda of priorities, the report concludes.