IMF head for Romania: The economy is set to grow by 5 pct this year, fiscal moderation needed

The head of the mission of the International Monetary Fund (IMF) in Romania, Jaewoo Lee, said that the local economy will grow by 5 percent this year, after last year’s gain of 7 percent – the biggest in the European Union.

Lee said that the on the medium term, the economic growth will slow down to around 3 percent. He cited fiscal moderation and tighter fiscal policy as some of the measures that can support growth going forward.

“It was an economic growth based on consumption. There is need for moderation and a stable rhythm,” said Lee, in a press conference, at the end of a 10-days review mission of the IMF.

The IMF representative warned that the Romania’s growth potential is threatened by the fiscal deficits coupled with the reduce level of investments.

Lee urged authorities to do more in terms of the amount of taxes collected to the state budget.

Read more about

EIB Group at IMF/World Bank Spring Meetings: Fostering the EU’s role as strong and reliable global partner

read more

“These poor results regarding the collection of taxes show the need for the urgent reorganization of the fiscal authorities and the IT systems,” said the head of the IMF mission. He added that the modernization of the IT system has to be the “priority” of authorities.

Lee suggested that the reduction of corruption also contributes to the improvement of tax revenue.

“The progress of Romania against corruption was acknowledged at international level and has to continue,” said Lee.

On the banking system, the IMF said that the lenders are well capitalized but their exposure in the real estate sector is high.

“The proposed limitation of the debt service to income can improve the situation of the borrowers and should be enforced for all mortgage loans, including for the Prima Casa Program. The strategy of the government to gradually reduce the program is welcomed,” said the IMF.

The IMF added that the authorities should avoid the enforcement of measures that cap interest rates on loans and the prices at which individuals can buyback receivables purchased by third parties.

“The initiatives that impact the financial system should be avoided. Several recent initiatives, if adopted, would reduce the credit granted to the real economy and would slow down the process of solving the issue of non-performing loans, negatively impacting the financial stability,” said Lee.