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September 30, 2022

IMF report: Indirect tax hikes explain much of Romania’s overrun inflation

Inflation currently runs above target in Albania, Belarus, Moldova, Poland, Serbia, Romania, and Russia, although indirect tax hikes explain much of Romania’s overrun, the latest International Monetary Fund (IMF) World Economic Outlook (WEO) report on April shows. Regarding the high fiscal deficit, it constitutes a considerable flow vulnerability in Latvia, Lithuania, Poland, and Romania. IMF also notes that growth rates are expected to be positive in all countries this year for the first time since the crisis. “The Baltics, Bulgaria, and, with somewhat of a delay, Romania will reap the full-year effect of the ongoing recovery”, it said in the report.

Fiscal consolidation efforts differed across countries: Albania, Bulgaria, Latvia, Lithuania, Moldova, and Romania all put in place measures in excess of 2 percent of GDP in an effort to curb high deficits. According to WEO, external debt ratios are set to decline very gradually, remaining above 75 percent of GDP in Bulgaria, Croatia, Hungary, Latvia, Lithuania, Montenegro, Romania, and Ukraine.

Another topic analysed in the report is the banking systems which are gradually returning to normalcy in most other countries, yet the recent evolution of profitability and asset quality indicators suggests that the next few quarters will remain challenging in Bosnia, Latvia, Lithuania, Montenegro, Romania, and Ukraine. In Latvia and Romania, the ratio of credit to the primary and tradable secondary sectors to GDP has grown at a slower pace than that of credit to the construction sector.

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