IMF Survey: European Parliamentarians Engage with IMF

*Parliamentarians agree on need to continue growth boosting agenda

• Rise in productivity in Eastern and Southeastern Europe needed to help tackle unemployment

• Regular engagement with IMF key element to building public support for reforms

Implementing structural reforms, mainly in pension systems and state-owned enterprises, is essential for countries in Eastern and Southeastern Europe to address crisis legacies and help stabilize debt and deficits, members of parliament concluded at a seminar at the Joint Vienna Institute (JVI).

Parliamentarians from Bosnia and Herzegovina, Romania, Serbia, and Ukraine discussed the major challenges facing the region, as well as country-specific issues, with IMF staff at a three-day seminar in Vienna, Austria on March 2-4, 2016. At the seminar, jointly organized by the JVI and the IMF, parliamentarians discussed the economic state of play in their countries, the outlook, and policy challenges with the IMF’s Resident Representatives from the respective countries. Broader issues, including the refugee crisis and energy subsidy reform, were also discussed.

Structural reforms needed to boost growth

Presenting the key economic issues in the region, Bas Bakker, IMF Senior Regional Resident Representative for Central and Eastern Europe, said that overall GDP growth was expected to remain modest at best. Seminar participants agreed on the importance of implementing structural reforms in their countries to boost growth, increase productivity, and create jobs. A common theme was the need to reform inefficient and non-transparent state-owned enterprises, tackle corruption, increase efficiency, and privatize state businesses. Parliamentarians called for further pension reforms in their countries.

A presentation of the findings of an IMF study on the refugee surge in Europe offered a timely perspective on the economic challenges facing countries directly affected by the current influx of refugees. Parliamentarians called for a comprehensive approach to the crisis that takes into account economic, social, and security aspects. Several parliamentarians warned against severe repercussions for the European Union, with some expressing concerns that it would bring the enlargement process to a halt.

Bosnia and Herzegovina: Implementing the reform agenda

Parliamentarians drew attention to the reform efforts of the country, noting that a comprehensive agenda had been adopted recently. They, however, also pointed to the country’s highly complex governance structure, which complicates decision-making processes and the implementation of reforms. Francisco Parodi, IMF Resident Representative for Bosnia and Herzegovina urged parliamentarians to focus on the quality of the measures instead of their number. Moreover, the country should decrease public debt, safeguard the stability of its financial sector, and revive bank lending. Improving business climate, attracting more investments, and raising growth potential are further tasks, he said.

Romania: Maintaining fiscal achievements

While real GDP in Romania has recovered to its pre-crisis level and economic growth appears to have gained some momentum, progress on structural reforms has slowed, according to Jeffrey Franks, Director of the IMF’s Europe Office. Responding to a question from a Romanian parliamentarian on whether to use fiscal stimuli to boost demand, Franks stressed the need to control spending during periods of strong growth to avoid overheating the economy and building up future imbalances. Parliamentarians discussed the issue of determining appropriate public sector wages, particularly in the context of the ongoing effort to eliminate corruption, which many consider as one of the main challenges for the country.

Serbia: Focusing on fiscal consolidation

Reforms in the public sector and state-owned enterprises are an essential part of the IMF recommendations for Serbia in the current IMF-supported economic reform program. Daehaeng Kim from the IMF’s Belgrade Office highlighted the need to improve the efficiency of the public sector to help more with less resources. He stressed that the only way to protect jobs in loss-making state-owned enterprises was to implement deep restructuring for financial viability. Serbian parliamentarians drew attention to recent high non-tax revenues mainly from dividends from the state-owned enterprises. Kim noted that the IMF in general welcomed non-tax revenues, as long as they did not threaten the financial stability of these enterprises. He also stressed that political support would be essential as the country pushes ahead with deep reforms and fiscal consolidation in the coming years.

Ukraine: Maintaining reform

While the country’s fragile security situation remains the number one concern, a large shadow economy and high corruption are among the main economic challenges, according to parliamentarians from Ukraine. Other issues of particularly high importance for the wider public include energy security and reforms of the energy sector. Parliamentarians also stressed the need for a reform of the pension system. According to Jerome Vacher, IMF Resident Representative for Ukraine, commitment, program ownership, and maintaining the reform momentum will be the keys to implementing the challenging reform program and building on the first gains of macroeconomic stabilization.

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