Monday, June 30, 2008

IMF cautions on external vulnerability.

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IMF cautions on external vulnerability. Romania remains vulnerable to additional adverse spillovers from events in global markets, the IMF states in the concluding remarks on Article IV Consultations. The Fund welcomed the strong growth of the Romanian economy in 2007 and 2008 that contributed to an impressive increase in per capita income, but it also observed that large capital inflows related to Romania 's accession to the EU, compounded by pro-cyclical fiscal policies, have contributed to booms in domestic demand and credit and emerging capacity constraints. The Fund’s BoD urged the government to strengthen policies and enhance structural reforms . It recommended better balance between fiscal and monetary policies to counteract private sector-driven macroeconomic imbalances. The government should pursue a medium term fiscal policy and maintain sound public finances and the Fund recommends a 1.5%-of-GDP deficit for this year against 2.3% envisaged by the cabinet. The central bank should strengthen its capacity to implement and communicate to the public its inflation targeting framework, it was also stressed. Selected Economic and Social Indicators, 2005-2009 2005 2006 2007 2008P 2009P Real GDP y/y 4.2 7.9 6.0 6.8 5.8 Real GDP excluding agricultural sector y/y 6.4 7.6 7.4 6.5 5.6 Real domestic demand (absorption) y/y 8.8 14.5 16.4 9.3 9.9 Consumer price index (CPI, average) y/y 9.0 6.6 4.8 8.2 6.6 Budget revenue % of GDP 30.2 31 31.4 34.7 35.2 Budget expenditure % of GDP 31.0 31.6 33.7 36.8 38.2 Fiscal balance % of GDP -0.8 -0.6 -2.3 -2.1 -2.9 Structural fiscal balance * % of GDP -1.3 -1.8 -3.9 -3.4 -3.8 Current account balance % of GDP -8.9 -10.4 -14 -14.4 -14 Merchandise trade balance % of GDP -9.9 -12.0 -14.6 -14.9 -14.4 Capital and financial account balance % of GDP 15.6 15.7 17.6 16.1 16.8 Foreign direct investment balance % of GDP 6.6 8.9 5.9 5.6 5.0 Source: IMF. * adjusted for the automatic effects of output gap and absorption gap on the fiscal position

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IMF cautions on external vulnerability.

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