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“Romania’s buffers have deteriorated, the country is less prepared for a negative shock” – IMF will reduce economic growth estimate

de Victor Bratu , 9.9.2018

Romania will be less prepared if the economy is hit by a negative shock, as the structural deficit has been deteriorated – IMF representative for Romania and Bulgaria Alejandro Hajdenberg said on Thursday at an event organized by Fondul Proprietatea.

Over the last two years, Romania had one of the largest fiscal expansions in Europe, with a large deterioration of the structural deficit. At the same time, there is a deterioration in terms of budget composition, “Alejandro Hajdenberg said.

He pointed out that there is a significant decrease in funds for public investment.

Buffers that Romania built during the financial crisis, with improvements on the fiscal balance (…), have deteriorated. Romania will be less prepared if the economy is hit by a negative shock. There will be less fiscal space to react,” said the IMF official, quoted by Hotnews.

In this context, the IMF is preparing to reduce Romania’s economic growth estimate to 4.4 – 4.5%, as the initial rate of 5.1% issued by the financial institution was based on the 2018 spring data, according to Mediafax.

The economic growth estimate of 5.1% for 2018 was based on data available in March. We are in the process of reviewing it and the forecast will be revised in October, and based on the most recent indicators and the economic deceleration in the first part of the year, we will review the growth estimate somewhere at 4% – 4.5%, but we are still discussing that“, said Alejandro Hajdenberg.

The latest government forecast for the economic growth is 5.5% for 2018, a target considered by analysts to be far too ambitious.

Present at the same event, Ionut Dumitru, chairman of the fiscal council, said: “We have a projection at the bank (Raiffeisen Bank – editor’s note), currently of 4.2%, which we already consider very optimistic and we are in the process to revise it, perhaps somewhere below 4%, rather around 3.5%. So a 5.5% growth seems unrealistic at the moment and seems to have a very low probability. When we talk about projections, nobody is right, of course, as no one knows exactly what will happen in the future, but we can attach some lower or higher probabilities. To the 5.5% growth projected by the Government, I would attach a probability close to 0“.

Minister Teodorovici: These are alarmist statements

Finance Minister Eugen Teodorovici believes that the IMF’s statements are alarmist and it is not the first time when international institutions are wrong about Romania’s performance.

“I will have a discussion with the IMF representative in Bucharest because these statements must be very well substantiated when they are launched into the public space.

On the other hand, all estimates over the years – whether they were from the European Commission, the Monetary Fund, the Fiscal Council, or other areas of this kind – were not necessarily more prudent, perhaps they were many times even more alarming, and the implementation or completion of fiscal years showed very clearly that things were the way we anticipated and promised, which would not necessarily be a matter of dispute.

It is normal for someone who is outside Romania to think like that, unfortunately. Unfortunately, there are also some people in Romania who think like that, but every time, at the end of the year, we saw clearly that the figure we estimated, whether it is was about the deficit, public debt, other macroeconomic indicators, things were exactly the way we anticipated,” said the Finance Minister for Digi24.

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