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IMF estimation: Romania's economy could face recession this year

The International Monetary Fund estimated that Romania's economy, brutally hit by the economic downturn, could witness recession this year and start to recover only at yearend or at the beginning of 2010.

The IMF fails to present any numbers on the evolution of Romania's gross domestic product (GDP) this year, but argues the prognosis was made after the rapid deterioration of the economic indicators in the last quarter of 2008.

Although it is true that uncertainties regarding the prognosis are high, the risk balance is biased towards deterioration, according to the release of the IMF representative in Romania and Bulgaria, Juan-Jose Fernandez Ansola.

Exports began to crash, the availability of credit reduced for companies and the population and consumption and investments are going down. The industrial output is shrinking and the trust of companies and consumers deteriorated, the release added.

The IMF shows that problems on the external markets triggered the economic hardship in Romania, but stresses that the unbalances which have been accumulating in the Romanian economy for some time are only making the consequences much worse.

According to the institution, the current account and budget gaps increased the Romanian economy's vulnerability to external shocks and insufficient structural reforms left it less productive and less flexible to offset the economic downturn.

The IMF stressed that public spending policies in the past years worsened the current economic troubles.Government expenses doubled between 2005 and 2008 and the spendings bill for salaries in the public sector almost tripled in the past three years, following the salary hikes and the climb in the number of employees.

IMF recommendations regarding fiscal and monetary policies

At the end of its mission to Bucharest between January 27 and February 4, the IMF has three recommendations.The first recommendation is directly tied to the fiscal policy and strongly supports the government's decision to narrow the budget deficit to 2 percent of the GDP this year. However, the institution stresses the 2009 budget draft is based on optimistic estimates regarding economic growth and collections to the budget. The government is considering total spendings of 35.5 percent of the GDP and estimates the economic advance at 2.5 percent for the year.

Secondly, the IMF supports the intention of the central lender BNR to focus on meeting the inflation target, which it missed last year partially due to an expansionist fiscal policy and high prices for raw materials and energy in the first part of the year. So the IMF recommends BNR to prioritize lowering the inflation rate to the targeted range as soon as possible.Thirdly, BNR should carefully monitor the banks' risk management, their ability to absorb various shocks and the capital adequacy.

BNR should continue to act to temper unbalances in the banking system, IMF believes.

Towards the end of its release, the institution restates that adopting credible fiscal and monetary policies will significantly increase the chances for Romania to weather the current economic turmoil.

 

Sursa: http://www.actmedia.eu

Tags: economic economy romanias bnr

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