IMF’s Managing Director appreciated Romania for reducing fiscal deficit by more than 6 per cent of GDP, and has exited the EU’s Excessive Deficit Procedure this year. Reforms are needed to support job creation and employment.
Romania has successfully stabilized its economy after being hard hit by the crisis, Managing Director of the International Monetary Fund (IMF), Christine Lagarde, stated on Tuesday during a press conference – “Eastern Europe and Romania: The Path to Prosperity” – hosted by the National Bank of Romania (BNR).
“This involved difficult decisions, but the country took ownership of the problems and delivered an impressive reversal of previously unsustainable macroeconomic imbalances. In the space of three years, Romania reduced its fiscal deficit by more than 6 per cent of GDP, and has exited the EU’s Excessive Deficit Procedure this year. Certainly, a big part of this story is the strides Romania has taken to transform its institutions and strengthen decision-making with EU membership”, said the IMF official in her speech.
According to Christine Lagarde, the priority is to pursue plans for structural transformation to make sure that Romania can not only survive, but will thrive as part of Europe.
“Your home and your future lie within the European family. At the same time, Romania has even more at stake, more to gain among the countries in your neighborhood. (…) Your country deserves credit for taking steps over the past several years to begin chipping away at the barriers to higher growth. Here, I would highlight the impressive steps toward liberalizing energy prices. (…) There are however other reforms that can boost competitiveness and put Romania on a permanent path to higher and more inclusive growth. What kind of reforms do I mean? Reforms that support job creation and employment along with continued efforts to improve social protections for the most vulnerable.
Improving the climate for investment is not just oriented to the private sector. Steps to improve Romania’s ability to effectively use EU funds for efficient public investment would also support growth,” said Lagarde.
Earlier, the President Traian Basescu said at the start of the special meeting with the Managing Director of IMF at Cotroceni Palace that, although there were a few problems, the IMF agreement was finalized. “We managed to complete the second agreement with the IMF. To be honest, there were some problems, but with goodwill of all, the agreement was finalized. Now, we need to start a new one. I’ll be direct. Initially, the European Commission was not too much in favour of a new agreement, simply because they do not have such regulations on countries in case of which the excessive budget deficit cannot be applied – you know the problem … but we managed to have an understanding with the European Commission, we can now continue,” the President said.
IMF Managing Director stressed that Romania has made very much progress in the past 20 years and what has been achieved in the partnership with the international financial institution is quite extraordinary.
“Now, five years after the start of the crisis, the worst has passed. Most of the countries in your neighborhood have returned to growth, along with Romania. This year, we expect only two countries – Croatia and Slovenia – to remain in recession, compared to eight last year,” said Lagarde.
Lagarde for Nine O’Clock: EU funds absorption remains an objective for the next agreement
When asked what are the missing links between the facts that Romania has stabilized from macroeconomic point of view and that the growth is weak and there are still risks to the economy, Christine Lagarde emphasized for Nine O’Clock during a special on-the-record media roundtable.
“Number one: the international environment. So, for the country that reached the development stage of Romania, having strong growing partners is clearly important. Point number two: the available funding for infrastructure and structural investments should be fully used, and here I refer to the EU funds, to give the framework to investors to operate in Romania,” the IMF managing Director said.
Christine Lagarde said that “the rate of the EU funds absorption should be an objective of the Gov’t in the next agreement with IMF, remaining to see if this will be criteria to negotiate,” adding that the new head of IMF mission for Romania Andrea Schaechter is to follow on the issue.
Traian Basescu: Romania must target obligations stipulated by the Fiscal Treaty
Romania can be unbalanced easily in terms of macro-economic stability, only by a few populist decisions, and this trend exists at the moment, according to President Basescu.
‘I have some ideas about this new agreement. Firstly, I think, as a country that has already signed the Fiscal Treaty, from the point of view of the IMF, we have to target the obligations stipulated in this treaty. Secondly, we are on the right track in what concerns the macro-economic stability, but this process is not yet consolidated and we have to work hard to maintain the macro-economic stability. Looking at the figures, we can see easily that only by a few populist decisions Romania could easily lose balance. And, currently, there is such a tendency in Romania,’ the head of state said.
In turn, Christine Lagarde stressed that the fact a second agreement with IMF was completed is good, noting that it took longer because Romania had to take some steps.
‘We wait for negotiations and discussions for the next step. More reforms will be needed, more structural reforms and I hope these all will be useful to the country in order to strengthen the economy and that Romanians will benefit from them,’ the IMF Managing Director stressed.
Importance of continuing structural reforms and increasing EU funds absorption
After the meeting on Monday between the Managing Director of IMF and Premier Victor Ponta, at the Victoria Palace, the two officials agreed on continuing the structural reforms and the increase in the absorption of European funds, informs a release the Government. ‘The sides agreed on the importance of continuing the structural reforms and increasing the absorption of European funds as motive powers of the medium and long-term economic growth,’ reads the above-mentioned source. The Executive says that during the meeting referred to the Romanian Prime Minister revealed the economic achievements of the Government and the macroeconomic policies considered for the time to come. The Government also makes it clear that the IMF Managing Director congratulated the Romanian authorities for successfully concluding the agreement that was finalized in June as well as for Romania getting out of the excessive budget deficit procedure.
During her two day visit, Christine Lagarde met Romanian officials – PM Ponta, president of Romania Traian Basescu, BNR Governor Mugur Isarescu, Economy Minister Daniel Chitoiu, Minister Delegate for Budget Liviu Voinea – and decision makers as well as representatives of the private sector – CEO Petrom Mariana Gheorghe, representatives of the civil society and of the academic environment in order to discuss the current economic prospects and the challenges that the country will have to face.