Romania needs structural reforms, including consolidation of public finances and correction of macroeconomic imbalances, and good public policies aiming to ensure real convergence to the western world through living standards improvements and infrastructure development, central bank governor Mugur Isarescu said on Tuesday.
“Economic convergence – both real and nominal – must move in line with the fundamentals of the economy, otherwise progress would be jeopardized by steep slippages,” Isarescu said in Oradea.
On the path to smooth and sustainable convergence, a first guiding principle is to avoid enrolling on a divergent trajectory, according to the governor.
“In other words, to wander the road, to go another way than the one leading to the eurozone. In the battle for convergence, we must be careful not to diverge,” he points out.
The governor told his audience that reducing development gaps within the country is also key to mitigating trade-offs that pose challenges to policies that face asymmetric shocks.
“In Romania, for example, comparable regions, in terms of level of development and living standards, can be encountered with Western economies, but also regions that are far behind. In 2017, Romania’s most prosperous region was almost four times richer than the poorest region (based on regional GDP per capita),” Isarescu indicates.
Prior to the euro adoption, Romania needs a correction of macroeconomic imbalances and a reduction of the convergence gap, along with the fulfillment of structural conditions, mainly in the area of consolidation of public finances, infrastructure development and increased competitiveness.
“The rhythm of the process must be one that can be preserved, and once we have taken steps forward, we must not regress or step back on the spot. In fact, excessive exacerbation of the convergence process is as bad as treading it,” Isarescu said.
According to the governor, it is important to keep the Romanian economy on a growth path while paying close attention to protecting the macroeconomic balances recovered from a painful adjustment process that has taken place since the international financial crisis.
“The only way to go forward is to use a coherent mix of macroeconomic policies and firm structural reforms to increase the growth potential of the economy and at the same time enhance its resilience to shocks,” Mugur Isarescu added.