5.9 C
December 10, 2022

IMF recommendations more balanced between revenues and expenditures

Jeffrey Frank reveals that the president and the government insisted on cutting public expenses exclusively. IMF has revised its economic forecast down from 0.8 percent of GDP to -0.5 percent for 2010, but growth will rebound in 2011.

Romania’s economy is not yet out of the woods and the recent turmoil in the European financial markets has heightened risks. The IMF expects a modest decline in real growth for 2010 as a whole, with a strong recovery on the cards for 2011, according to IMF’s mission chief for Romania, Jeffrey Franks in an interview posted on the fund’s website. The impact of Greece’s debt crisis on Romania’s economy isn’t strong right now, but this heightens risks. “The government is going to have to be more vigilant in how it implements policies going forward, to avoid any effects from what is going on elsewhere in Europe. Certainly, the fact the European economy is recovering less quickly than some other regions is affecting Romania. The economy’s return to positive growth is delayed and somewhat weaker than we had originally anticipated. As a consequence, we have revised our economic forecast down from 0.8 percent of GDP to -0.5 percent for 2010. But growth will rebound in 2011”, said the IMF official. The IMF’s recommendation at the Romanian government’s austerity measures, including a 25 percent cut in public sector wages was more balanced between revenues and expenditures. The measures in the program that are aimed at protecting the more socially vulnerable groups in Romania are part of the IMF-supported program.

“Given that the authorities wanted to rely on heavy expenditure cuts in adjusting their budget, we asked that they put in place some protection for the most vulnerable. In particular, working with the World Bank, they want to make sure that although there are going to be cuts in social transfers of 15 percent, those cuts will be proportionately larger on inefficient and poorly focused programs, and there would be no cuts on the best-focused of the social assistance packages. The program the World Bank would like to protect, and the government has agreed to, is called the “guaranteed minimum income scheme” which provides a floor on the income of the least fortunate”, stressed Franks.

Banks remain well capitalised, highly liquid

The banking system has been affected by the very sharp recession in Romania, as would be expected, said the IMF’s mission chief for Romania. However, the banks remain well capitalised and highly liquid. The average capitalisation of Romanian banks is currently 14 percent, significantly above the statutory minimum of 8 percent, so the banks have a cushion of capital that they can rely upon to take them through the recession. There are several Greek banks that operate subsidiaries in Romania, but Franks stressed again, “those banks are well capitalised, tightly supervised, and we do not see any significant negative effects at this stage in those banks”. The depreciation of Romania’s currency reflected some negative effects of the crisis, but it had the positive effect of making national exports more competitive, said also Franks. “The bottom line is a gain of about 15 percent in competitiveness as a result of more depreciated currency. What is key to going forward, now that currency is stabilised and the financial markets in Romania have stabilised, is for the government to undertake structural reforms to make their economy more efficient, more flexible, and more productive, which would give them additional competitiveness going forward,” Franks said.

Romania, relatively less affected by unemployment than other countries

Unemployment has risen significantly and stands at about 8 percent in April, according to National Agency for the Employment of Labour Force (ANOFM). But that still leaves Romania with an unemployment rate that is significantly below the EU average. “Romania has been relatively less affected than some other countries. We believe that there will be a further increase in the number of unemployed during 2010 before unemployment begins to turn around in the fall. That’s because the recovery will only happen during the second part of the year,” the IMF’s mission chief concluded.

Related posts

Renault Latitude, starting price – EUR 21,000




The Economist: “God gives you but he is never stuffing it into your bag”

Nine O' Clock