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| ECONOMIC FORECASTS (05/05/2008) |
| (2008-05-05) |
| Last updated: 2008-05-07 17:20 EET |
The International Monetary Fund argues that Romania needs consistent long-term policies in order to further its economic growth. IMF experts say that without pursuing such policies, the economic growth rate will considerably slow down. This April, experts assessed Romania’s prospects, in the light of the latest domestic and international developments, and made a number of recommendations to the Bucharest authorities.
The IMF called on the Romanian government not to accept a cut down of the VAT for foodstuffs or a new pension increase before January 2009, and suggested prudence in the salary policies, particularly in the public sector. These are, according to the IMF mission, the main “threats” to the country's macroeconomic stability. Experts also recommended to the authorities to adjust the current taxation approach, focusing on short-term goals, and to give up the practice of frequent budget rectification and emergency ordinances. Another suggested measure is to set up an independent fiscal agency, able to provide macroeconomic and budget revenue forecasts.
IMF expects Romania to have this year a 5.5 per cent economic growth rate, which will slow down to 4.7 per cent next year. The institution also estimates a 6.5 per cent annual inflation rate, expected to return to the range targeted by the central bank, namely 3.5 per cent plus/minus one per cent in 2009. The fund believes that the country's monetary policy should continue to focus on curtailing inflation. The central bank is also urged to continue to monitor and control operational risks in the banking sector, given that many credit institutions focus on aggressively increasing their market shares, by promoting, among others, loans in currencies like the Japanese yen or Swiss franc.
Experts also recommend that Romanian authorities should work for a budget deficit of 1.75 per cent of GDP in 2008, and to reduce it in the long run to a percentage that ensures the fiscal sustainability of the country. In a document that summarises the conclusions of the recent assessment mission in Bucharest, the IMF reiterates that the implementation of structural reforms has slowed down in Romania, as a result of the turmoil in the political arena, and that it is precisely the application of such reforms that will play a critical role in the country's EU convergence process.
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