IMF mission urges Romania to further reduce its already high fiscal deficit

Romania has weathered the economic shocks of the pandemic, Russia’s war in Ukraine, and the subsequent spike in energy and food costs, but while it has managed to reduce its budget deficit significantly, it needs to do more, an IMF mission to Romania from 22 September to 4 October has found.

The International Monetary Fund (IMF) delegation, led by Jan Kees Martijn, presented the findings of its official visit to Romania, noting that the current account deficit remains large but is declining and that “the recently adopted fiscal package is an important first step to reduce it”.

The recently implemented fiscal measures mark “an important first step to reduce the high fiscal deficit”, although the target at the end of the year remains unlikely, the IMF mission stated. “The original deficit target for 2023 of 4.4% of GDP is now likely out of reach, and we project a deficit of 6% of GDP”, it added.

Improving the predictability of fiscal policy and implementing additional ambitious tax reforms aimed at increasing fiscal capacity, promoting a fairer and more efficient tax system and raising revenues to strengthen public services stand out as key recommendations.

The overarching policy objective is to put public finances on a sustainable path, which requires greater predictability of fiscal policy. In response to tighter monetary policy, inflation is currently on a downward trend.

Structural reforms need to address weaknesses in governance and improve the quality of public services. Substantial efforts are needed to support Romania’s transition to a low-carbon economy.

“Our economic growth is based on investment. We are giving top priority to supporting infrastructure projects, with a special focus on transport,” said Prime Minister Marcel Ciolacu at the end of the IMF mission’s visit. He also stressed the crucial importance of health and education infrastructure in the budget framework.

The IMF mission held discussions on the 2023 Article IV consultation with one member state.

(Manuela Preoteasa | Euractiv.ro)