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May 18, 2021

IMF: Romania’s economy recovering slower than those of other countries

There are opportunities in domains such as energy and exports, according to Guillermo Tolosa, International Monetary Fund’s resident representative for Romania and Bulgaria.

Romania’s economy will return this year to the GDP level registered before the crisis, however the recovery is slower compared to other states strongly affected by the crisis, with minuses registered in the absorption of EU funds, infrastructure and state-owned companies, but with opportunities in domains such as energy and exports, according to the IMF.
“Last year Romania registered the best performance in terms of growth in the region, only Latvia was better, however the structural reforms and the acceleration of the absorption of European funds are necessary in order to maintain growth. (…) We are waiting for better progress,” Guillermo Tolosa, International Monetary Fund’s resident representative for Romania and Bulgaria, stated yesterday at a conference on financial control issues, Mediafax reports.
Romania’s GDP stood at approximately USD 140 bln in 2008, before the onset of the economic crisis. Last year the economy grew by 3.5 percent and a growth of 2.2 – 2.5 percent is expected this year. In the 2001-2008 interval the economy registered, with a single exception, annual growth rates higher than 5 percent. However he pointed out that economic performance depends on too many factors such as the weather, which influences agricultural output, the latter contributing 6 percent to GDP. “Agriculture remains an important economic growth factor, but it renders the economy vulnerable to shocks, oscillations are registered annually based on this factor,” Tolosa said.
He warned that Romania should take advantage of the opportunities it has in order to support and accelerate economic growth, namely by intensifying the absorption of EU funds, focusing on exports and energy.
The IMF official pointed out that Romanian exports represent just 40 percent of GDP, while in other states that level stands at 100 percent. “For example, if we take into account the exports towards Germany, the Czech Republic exports represent 25.5 percent of GDP, so a quarter of the Czech Republic’s GDP represents exports to Germany. Hungary’s level is 21 percent, while Romania’s is just 6.4 percent, four times lower than that of the Czech Republic. It’s an immense opportunity for Romania to develop on this segment,” Toloso pointed out.
At the same time, he says Romania has a diversified source of energy and should take advantage of this, many sectors of the energy industry having growth potential. Moreover, energy has a share of just 10 percent of total imports, while in other countries that level stands at 30-35 percent, an aspect that can be speculated for economic growth.
On the other hand, the poor absorption of EU funds places Romania on the last place, a deficit that it has to cover fast because other states such as Poland have taken advantage of European funds in order to recover from the crisis and to resume sustained economic growth.
Infrastructure is one of the chapters that act as a brake on economic growth, Romania trailing at a considerable distance behind other EU states in what concerns infrastructure, especially railway and electricity infrastructure, solely Bulgaria being in an inferior position.
At the same time, the state’s significant control over companies from various sectors negatively affects their development, Tolosa stated, drawing attention to the arrears registered by state-owned companies, arrears that represent 1 percent of GDP. “State-owned companies represent 56 percent of the energy and natural gas sectors, the state still has important control in a lot of key domains, and is not efficient. State-owned companies in general have massive losses, offer low-quality services, are not very competitive,” Tolosa stated.
FinMin Petrescu: We are not extending the tax base
The Finances will not negotiate with the IMF the extension of the tax base as a measure meant to compensate for the lowering of the social insurance contributions (CAS) by 5 percent, as stipulated by the letter of intent, Minister Petrescu stated, pointing out that the lowering of the CAS will be applied on July 1 and will affect revenues by RON 1.5 bln.
She pointed out that she estimates for this year an economic growth higher than last year’s, when a growth of 3.5 percent was registered, hence implicitly higher than the 2.2 percent growth included in the budget law. The macroeconomic figures will be renegotiated with the IMF delegation.
Ioana Petrescu avoided saying how the lowering of the CAS can be applied on July 1 since Budget Minister Liviu Voinea stated a day before that the budget rectification will be made in August.
Ponta: Gov’t memorandum on railway lines is older strategy negotiated with IMF
The memorandum discussed on Wednesday within the government concerning the lowering of the number of unprofitable railway lines is the older strategy negotiated with the International Monetary Fund (IMF) on the shutting down of those lines that generate losses, Premier Victor Ponta stated.

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