Among EU countries, Romania suffered a relatively shallow recession in the COVID-19 crisis, aided by macroeconomic easing. A strong recovery is projected in 2021. The new government is committed to balance continued pandemic-related support with the start of a medium-term fiscal consolidation trajectory that corrects pre-pandemic excesses, while implementing a range of structural reforms. These efforts, as well as the medium-term recovery, should be bolstered by large Next Generation EU grants.
The COVID-19 pandemic has caused dramatic loss of human life and major damage to the European economy, but thanks to an exceptionally strong policy response, potentially devastating outcomes have been avoided.
This 2019 Article IV Consultation with Romania discusses that growth in 2019 is expected to stay above potential at 4 percent, led by continued fiscal stimulus and strong wage growth, and be accompanied by further widening of current account and fiscal deficits. The focus of discussions was on actions required to curb the widening imbalances and to re-orient the economy toward investment and sustainable income convergence. It is recommended that Romania take advantage of strong growth and start durable fiscal consolidation underpinned by high-quality measures to rein in the twin deficits and improve the macroeconomic policy mix. The more fiscal policy tightens, the less monetary tightening is needed. The report also advises to modernize revenue administration and improve expenditure efficiency. Reassessment of the new pension law to balance social needs and fiscal sustainability is also important. Rising vulnerability calls for a balanced macroeconomic policy mix built on durable fiscal consolidation. High-quality fiscal consolidation would reduce the burden on monetary policy for macroeconomic stabilization, mitigate external pressure by containing the current account deterioration, and bolster growth potential by improving the balance between consumption and investment.
This 2018 Article IV Consultation highlights that Romania recorded strong economic growth in 2017, with record low unemployment and an improving financial sector. Private consumption boosted by fiscal stimulus and wage increases led the strong growth, while investment lagged and structural reforms slowed. Public investment fell to a multi-year low in percent of GDP with a low absorption of European Union funds. Both the government deficit and current account deficit widened, respectively to 2.8 and 3.4 percent of GDP in 2017. Growth is expected to reach 5 percent in 2018—led again by continuing stimulus to private consumption from fiscal relaxation—and accompanied by a current account deficit and elevated inflation, even as monetary policy is tightened.
This 2017 Article IV Consultation highlights Romania’s strong economic growth in 2016, resulting in a closed output gap. Private consumption was boosted by an expansionary and procyclical fiscal policy and wage increases. The cyclically adjusted budget deficit grew by 1.5 percent of GDP in 2016, reflecting large tax rate cuts and wage increases. Headline inflation remained subdued owing to indirect tax cuts, administrative price adjustments, and low euro area inflation and oil prices. There has been welcome progress in reducing banking sector nonperforming loans. Growth is expected to reach 4.2 percent in 2017 and to moderate to 3.5 percent in the medium term.
This paper discusses Romania’s Ex-Post Evaluation of Exceptional Access under the 2013 Stand-by Arrangement. Romania experienced strong economic growth in 2016, resulting in a closed output gap. Private consumption was boosted by an expansionary and procyclical fiscal policy and wage increases. The cyclically adjusted budget deficit grew by 1.5 percent of GDP in 2016, reflecting large tax rate cuts and wage increases. Growth is expected to reach 4.2 percent in 2017—supported by continued stimulus to private consumption from a new round of fiscal relaxation and wage increases—and to moderate to 3.5 percent in the medium term.
This paper discusses recent economic developments, outlook, and risks related to the Romanian economy. Romania made important progress in addressing economic imbalances and restoring growth after the global financial crisis. Prudent policies, partly in the context of successive IMF-supported programs, reduced vulnerabilities, and the fiscal and current account deficits improved markedly. However, economic policies have weakened recently and hard-won gains are at risk of being reversed. Governance problems have received more attention recently, and Romania has made progress compared to its peers in the fight against corruption. Staff’s baseline projection is for growth to remain above potential in 2016–17.
This 2015 Article IV Consultation highlights that Romania’s economic recovery has become more entrenched and broad based, with private consumption picking up on the back of rising real disposable income. At the same time, inflation has decelerated substantially over the past two years and a negative output gap persists. The banking sector has considerably reduced nonperforming loans, though they remain high, and private sector credit has fallen since 2013. Growth is projected to remain robust in a low inflation environment. Raising growth prospects over the longer term requires continuity of sustainable macroeconomic policies, underpinned by stronger fiscal and regulatory institutions, and a more stable and predictable business environment, which is crucial for investor confidence.
This first and second reviews under the Stand-By-Arrangement analyzes Ex Post Evaluation of exceptional access for Romania. Efforts are needed to strengthen monetary policy transmission. The banking system remains well capitalized, but the authorities need to accelerate the resolution of nonperforming loans and closely monitor risks from parent bank deleveraging. The Romanian authorities continue their efforts to reach the goals of a broad structural agenda, with a focus on structural reforms in the energy, transport and healthcare sectors, and continue the reform of the state-owned enterprises.