IMF urges Romania to pursue substantial fiscal policy reform

Romania’s new pension reform pushes fiscal deficit projections above 6% of GDP in the next few years, while efforts to contain non-pension spending and improve government and tax administration efficiency are not sufficient to reign in deficits in the short-term, the IMF said in a press release on Thursday after concluding its regular visit to Bucharest.

“Fiscal deficits need to fall below 3% of GDP over the medium term to stabilise public debt, secure affordable market financing, and support ongoing disbursement of EU fund,” the IMF said.

The IMF’s policy recommendations include eliminating remaining income tax loopholes and exemptions, taxing more items at the standard VAT rate, introducing carbon taxes or fossil fuel excises in the transport and building sectors, increasing property taxation, and developing a mechanism to stretch out the fiscal burden spurred by the pension reform.

During a meeting with IMF officials on Thursday, prime minister Marcel Ciolacu said improving tax collection within the current framework while fighting tax evasion will continue to curb the deficit.

“The signs we already have for January are encouraging and we would like to discuss the projection again with the IMF team following the end of the first quarter of 2024,” Ciolacu was quoted as saying in a government press release.

Budgetary reform measures are scheduled to be finalised by mid-year, with the government pledging to implement all the reforms outlined in Romania’s National Recovery and Resilience Plan (NRRP) within the specified deadlines.

Romania's 2024 budget plan projects a deficit equivalent to 5% of GDP and higher revenues based on a 3.4% economic growth estimate.