IMF Warns of Rising Macroeconomic Imbalances in Romania

The IMF recommends fiscal moderation and monetary policy tightening to reduce macroeconomic imbalances, as well as greater exchange rate flexibility. Additionally, policies need to become more predictable and governance improve to enhance the medium-run prospects of income convergence.

Whereas growth is currently projected to remain around 4% in 2019, fueled by wage increases and consumption, the current account deficit is projected to exceed 5% of GDP. Over the medium term, the current account deficit is projected to remain elevated, while GDP growth slows, reflecting lost competitiveness, it said.

Continued rapid wage growth, including the minimum wage, in excess of productivity gains bodes ill for competitiveness. Going forward, minimum wages should be set by a transparent and objective mechanism reflecting improvements in productivity.

Efforts are needed to improve investment in public infrastructure, including to achieve more effective absorption of EU funds. To this end, special emphasis should be put on strengthening public investment institutions. Public-private partnerships often entail substantial risks. Therefore, such projects should be subject to careful analysis of their value-for-money, fiscal risks, and alternative financing options (e.g. EU funds), the IMF said in its concluding statement.

An IMF staff team visited Bucharest during May 27-June 7 to conduct the 2019 Article IV consultation discussions.