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The WB recommends to Romania a combination of fiscal consolidation and structural reforms, to solve external imbalances
Survey data from Romania, Croatia, and Bulgaria find that households are struggling to cope with the higher cost of living despite fiscal support and social safety nets. Across the countries surveyed, the spring and summer of 2022 was marked by an increasing proportion of households reporting that it was harder to make ends meet than before the pandemic.
In Romania, the number of reporting households nearly doubled between spring 2021 and summer 2022, rising from 37 percent to 63 percent. This increasing trend was repeated in Croatia (33 percent to 58 percent) and Bulgaria (33 percent to 46 percent). These trends have likely continued into 2023 alongside persistent inflationary pressures.
Governments have continued to step in to shield their economies and people from the cost-of-living crisis, but support measures have varied considerably, depending on exposure to spillovers from Russia’s invasion of Ukraine and the availability of policy buffers. Most measures have been in the form of untargeted price support, such as price controls and subsidies, which are suboptimal as they distort price signals for consumers and producers. Social safety nets are vital in protecting households from various risks; yet these programs are still not sufficient to support the poorest and most vulnerable.
Well-targeted fiscal support can also bolster efforts to realign spending with revenues, especially as policy makers embark on much needed and delayed fiscal consolidation. The challenge, however, is to ensure that the economic slowdown is not exacerbated by fiscal consolidation efforts—as was the case following the global financial crisis. Countries can balance these priorities by reducing untargeted tax cuts, strengthening tax administration, broadening the tax base, and cutting subsidies on fossil fuels. These subsidies are costly and support demand for environmentally damaging and carbon-intensive energy sources, which erodes the incentive for energy conservation and creates tension with longer-term climate goals. EU countries will need to restore their macroeconomic policy buffers, while protecting the vulnerable from future shocks.
Since February 2022, the World Bank has mobilized more than $23 billion in financial support to Ukraine, of which over $20 billion has been disbursed (as at April 27, 2023). This includes $3.4 billion on the World Bank’s own balance sheet, with another $6.5 billion on the World Bank balance sheet planned over the next 12 months.
Following the devastating earthquakes and aftershocks in Türkiye in February 2023, the World Bank immediately announced an initial $1.78 billion in assistance to help relief and recovery efforts, and on February 27, the Bank’s initial rapid damage assessment estimated $34.2 billion in direct physical damages in Türkiye, the equivalent of 4% of the country’s 2021 GDP.
(https://documents1.worldbank.org/curated/en/099051123175082267/pdf/P18028109bfab800b0a771047dfd6c90089.pdf)