IMF stamps Romania's austerity program, warning regional uncertainties

15:22, August 08, 2010      

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by Lidia Moise

While praising Romania's efforts to slash its huge fiscal deficit at a reasonable level, the International Monetary Fund (IMF) warned that regional uncertainties could impede the country's economic growth perspective.

With a fragile economy, deep fiscal imbalances and continuing political stress, Romania may be largely exposed to a contagion risk from the problems of neighboring Hungary.

If fully implemented, the recent austerity measures and structural reforms in public spending of the Romanian government should be enough to achieve both this year's deficit target of 6.8 percent of gross domestic product (GDP) and 2011's target of 4.4 percent and there will be no need for further tax hikes, according to Jeffrey Franks, head of the IMF mission, which examined the progress of the stand-by agreement with Romania.

However, the expert warned that Romania's economy is not in a good shape and any problems in the region, especially in Hungary, will undermine the country's fragile path to recovery.

The recession of Romania would be deeper in 2010 due to the cumulative effect of consumption decline, floods and regional uncertainties, he said. IMF's estimation suggests a 1.5-1.9 percent contraction of Romania's economy in 2010, followed by a return to growth next year, probably in the 2 percent area.

The Romanian economy signaled a recovery in the second term of 2010. But the austerity measures and severe floods may reverse the path, noted Franks.

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