September 26 (SeeNews) - The International Monetary Fund (IMF) said on Monday it raised its forecast for Romania's 2022 economic growth to 4.8% from 3.5% projected in June and advised the government to implement prudent fiscal measures in order to reduce the negative economic impact of the war in Ukraine.
The improvement is supported mainly by momentum in domestic demand, the IMF said in a press release following the conclusion of Article IV consultations with Romania.
IMF executive directors welcomed Romania’s strong economic recovery from the pandemic but noted that the spillovers from Russia’s war on Ukraine—mainly through indirect channels—and tighter financial conditions have clouded the outlook with downside risks and higher uncertainty.
Against this backdrop, directors underscored the importance of implementing prudent macroeconomic policies that safeguard macroeconomic stability and of reenergizing structural reforms to boost economic growth, the IMF said.
The IMF also stressed the need to pursue medium-term fiscal consolidation to rebuild buffers, safeguard fiscal sustainability, and reduce external imbalances.
Romania's fiscal deficit narrowed in 2021 after the pandemic-induced widening and is projected to consolidate moderately further in 2022 as nominal revenue growth has been strong, the global lender noted.
In the IMF's view, the current account deficit is projected to remain elevated, but the rebound in FDI and the start of the EU-supported National Recovery and Resilience Plan provide substantial funding, with the latter anchored to a path for reforms and growth-enhancing investment into the medium term.
Romania is set to receive 29.2 billion euro ($28.2 billion) in total through its national Recovery and Resilience Plan, consisting of 14.2 billion euro in grants and 14.9 billion euro in loans.
To help improve medium-term budgeting and ensure predictability, IMF recommends Romania to reform its pensions system and public sector wages. While welcoming the recent tax measures, the IMF also encouraged the authorities to consider a more ambitious reform of the personal income tax and improvements to the efficiency of the value added tax.
In 2023, Romania's economy is seen rising 4.8%, up from 4.5% estimated in June, the IMF said.
Romania's economic output will increase by an estimated 3.5% in 2022, analysts at the country's finance ministry said in August, improving their previous forecast for 2.9% growth.
Currently, Romania has no ongoing funding agreement with the IMF.
($=1.0346 euro)