Romania: 2023 Article IV Consultation-Press Release; and Staff Report; IMF Country Report No. 23/395

ROMANIA IMFCountryReportNo.23/395 December2023 2023ARTICLEIVCONSULTATION—PRESSRELEASE;ANDSTAFFREPORT UnderArticleIVoftheIMF’sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Inthecontextofthe2023ArticleIVconsultationwithRomania,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressRelease TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonlapse-of-timebasisfollowingdiscussionsthatendedonOctober4,2023,withtheofficialsofRomaniaoneconomicdevelopmentsandpolicies.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonNovember17,2023. AnInformationalAnnexpreparedbytheIMFstaff. Thedocumentslistedbelowhavebeenorwillbeseparatelyreleased.SelectedIssues TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.org InternationalMonetaryFundWashington,D.C. ©2023InternationalMonetaryFund PR23/427 IMFExecutiveBoardConcludes2023ArticleIVConsultationwithRomania FORIMMEDIATERELEASE Washington,DC–December8,2023:TheExecutiveBoardoftheInternationalMonetaryFund(IMF)concludedtheArticleIVconsultation1withRomania,andconsideredandendorsedthestaffappraisalwithoutameeting.2 Romaniahasweatheredtheeconomicshocksfromthepandemic,Russia’swarinUkraine,andtheresultingsurgesinenergyandfoodpricesrelativelywell.Growth,at4.7percent,surprisedontheupsidein2022butslowedinthefirsthalfof2023toaround1.9percenty/yasconsumptionweakenedduetorealincomesbeingerodedbyinflation,andexternaldemandremainedsubdued.Publicandprivateinvestment,ontheotherhand,hasacceleratedfurther.CPIinflationpeakedat16.8percenty/yinNovember2022,andhassincebeenfallingsteadilyto8.8percenty/yinSeptember,aidedbybaseeffects,pricecapsonenergyand,morerecently,recedingenergyandfoodprices,aneasingofsupplybottlenecks,andmonetarytightening.Thefinancialsectorremainsrobust.Fiscaldeficitsremainhigh. Whilespendingpressuresfromthepandemicandsupportmeasurestocushionincreasesinenergyandfoodpriceshaveabated,structuralspendinghasincreasedsince2019withoutoffsettingincreasesinrevenue,andfiscalconsolidationhasstalledin2023.Thecurrentaccountdeficitalsoremainslargebutisdeclining,andislargelydrivenbydirectinvestmentflowsandrisinginflowsofEUfunds.Internationalreserveshaveincreasedsignificantly. Despitetheslowdown,growthisexpectedtoremainrobust.In2023,growthisprojectedat2¼percent,beforerecoveringmodestlytoaround2¾percentin2024asstrongerconsumption—drivenbyrisingrealwages—andexternaldemandarepartiallycounteredbythenecessaryfiscalconsolidation.Inthemediumterm,Romania’sgrowthtrajectoryisexpectedtoreturntoitspotentialrateofaround3¾percentasconsumptionandexportsrecoverfurther,andinvestment,underpinnedbyRRFfunds,remainsstrong.CPIinflationis projectedtoreturninsidetheNBR’stargetbandinearly2025onthebackofweakereconomicgrowthandfallingpricesforfoodandenergy,whichcomprisealmosthalfoftheconsumptionbasket.AfiscalpackageadoptedbytheauthoritiesinSeptemberisafirststeptowardsfiscalconsolidation,althoughthedeficitin2023isprojectedbystaffat6percentofGDP.In2024,withoutfurtherfiscalmeasures,thedeficitisforecasttofalltoslightlyabove5percentofGDP.Overthemediumterm,owingtofiscaladjustmentand—neartheendoftheprojectionhorizon—decliningEUcapitalgrants,thecurrentaccountdeficitisprojectedtonarrowmoderatelytoaround6percentofGDP. 1UnderArticleIVoftheIMF'sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Astaffteamvisitsthecountry,collectseconomicandfinancialinformation,anddiscusseswithofficialsthecountry'seconomicdevelopmentsandpolicies.Onreturntoheadquarters,thestaffpreparesareport. 2TheExecutiveBoardtakesdecisionsunderitslapse-of-timeprocedurewhentheBoardagreesthataproposalcanbeconsideredwithoutconveningformaldiscussions. 2 ExecutiveBoardAssessment3 Inconcludingthe2023ArticleIVconsultationwithRomania,ExecutiveDirectorsendorsedstaff’sappraisal,asfollows: Romania’seconomyhasperformedrelativelywellindifficulttimes.Growth,whileslowing,remainsfairlyrobust,andhigherthaninmostpeers.Inflation,afterpeakingatlowerlevelsthaninCESEEpeers,remainstoohighbutisrecedinggradually.TheimpressiveconvergencetoWesternEuropeanincomelevelsiscontinuing.Atthesametime,Romania’sexternalpositionin2022wassubstantiallyweakerthanthelevelimpliedbyfundamentalsanddesirablepolicies,althoughtheassessmentissubjecttoconsiderableuncertainty. Growthisexpectedtorecovermodestlyin2024,andtoreturntoitspotentialrateinthemediumterm,buttherearesubstantialrisks.EscalationofthewarinUkraine,apossiblefurtherweakeningofactivityacrossEurope,oranabruptglobalslowdowncouldunderminegrowthandcapitalflowstoemergingmarkets.ProlongedstrongwagegrowthinRomaniacoulddelaytheprojectedfallincoreinflation.Finally,theelectoralcalendarcouldmakefisca