IMF delegation concludes visit: Imbalances have deepened, policies need to change direction

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Macroeconomic imbalances have deepened in Romania, the current account and fiscal deficits have deepened, inflationist pressures are increasing and, if the policies do not change direction, the country could face revenues decrease which will affect mainly the poor, the International Monetary Fund (IMF) warns.

The current account deficit could exceed 5% of the GDP this year, in the context of a 4% economic growth, the IMF delegation’s report released on Friday reads, conclusion of the delegation led by Jaewoo Lee, reports.

First of all, fiscal consolidation should be accompanied by strengthening the monetary policy and by a higher flexibility of the exchange rate, IMF says.

“The growth driven by consumption has remained solid, leading to the increase of incomes for the population, closer to the ones in Western Europe. Nevertheless, the macroeconomic imbalances have deepened: the fiscal deficit and the current account deficit have deepened, with the inflationist pressures on the increase. If the policies do not change direction, the progress in reaching convergence will drop, which will lead to the decrease of the real incomes of pensioners and will affect mainly the poor. A more balanced mix of policies is needed to lower the probability of such a development: first of all and most important fiscal consolidation should be accompanied by the strengthening of the monetary policy and by a higher flexibility of the exchange rate. Moreover, the policies should become predictable and governance should improve, in order to increase the prospects regarding the revenue convergence over medium term,” the delegation’s statement reads.

The IMF draws the attention that a rapid growth of pensions could significantly increase the Government expenditures, which would significantly cut the budgets for public investments and of some key fields such as health and education.

IMF also warns that, in order to increase the tax collection, an improvement of the tax authority activity is essential, including the upgrading of the IT system.

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