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The IMF mission to Romania

The IMFs most recent assessment mission to Bucharest has come to an end.

The IMF mission to Romania
The IMF mission to Romania

, 15.03.2016, 13:10

An IMF delegation came to Bucharest earlier this March to conduct its annual assessment of Romanian economy. IMF experts expect an economic growth rate of 4.2% this year and 3.6% in 2017, against the backdrop of fiscal relaxation and income-boosting measures, stimulating consumption.



The head of the delegation, Reza Baqir, warned that tax cuts implemented under the new Fiscal Code were procyclical, thus putting Romania’s ability to react to future economic slumps at risk. The IMF recommends that Romania postpone fiscal relaxation measures scheduled for 2017, so as to reduce the budget deficit to 2% of the GDP. Additionally, Fund experts called on the authorities to postpone the future cut in VAT from 20% to 19%, as well as all the other facilities laid down in the Fiscal Code, which would result in savings worth 0.75% of the GDP.



On the other hand, the IMF wants to see more progress regarding spending and fiscal administration. The IMF experts also referred to the dangers of excessively increasing the minimum wage, which might determine employers to operate layoffs or to resort to informal payment methods. The IMF also pointed to the negative impact of the repossession law on the financial sector.



IMF chief for Romania Reza Baqir said that any support measure should be addressed to those who really need it. Romania should not waste resources helping those who took out loans for profit or investment purposes or those who still afford to pay their loans, the IMF official added. Reza Baqir insisted that the repossession law should not be applied retroactively, for existing contracts, which would seriously affect the wide perception of property law and the business environment.



The repossession law allows people to trade in their houses in exchange for having their bank debts written off. As regards structural reforms, the IMF recommended the swift adoption of all provisions related to improving corporate governance in all state-owned enterprises and setting up a priority list for companies to be listed on the stock market or passed into private hands.



Those reforms would help improve professional management in state-owned enterprises, would trigger a more effective distribution of resources and increase profitability. Additionally this line of reforms would help the state save money and curb its debts. The Fund also recommends that the authorities continue the fight against corruption, which would combat tax evasion, improve the business sector and attract more foreign investors.


(Translated by V. Palcu)

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