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The World Bank: the economic growth of Romania will accelerate at 4% in 2016
The World Bank estimates that the rhythm of economic growth of Romania will accelerate at 4% in 2016, supported by the expansionist fiscal policy and the reforms on the work market, but they warn against the risk of Romania getting into the procedure of excessive deficit due to the revision of the unitary law for public payment, according to the new report of the World Bank for Europe and Central Asia. According to the World Bank the measures of fiscal relaxation for 2016 cumulated with the salary increase in the public sector will simulate private consumption, while the low inflation and the relaxed monetary policy will help creditation and could have an impact on private investments. Even if acceleration of the consumption would lead to the aggravation of external imbalances, the World Bank considers that the deficit of current account will be under control.
Inflation will be in the negative territory in June 2016 when the effect of VAT reduction for food will wear off and it will increase gradually up to 1.4% at the end of the year. Otherwise, the budgetary deficit will significantly increase in 2016 and 2017 to3% as a result of the reduction of taxes and the payment increase in the public sector. ‘ In the absence of amendments to the taxation policies, which seem unlikely in an electoral year, the government will have to limit the current expenditure, to reduce investments and to improve the tax collection to avoid getting in the procedure of excessive deficit’ the World Bank says.
The international financial institution warns about the risks are important.’ Fiscal risks on a short term must be managed with attention in the context of the foreign environment which is uncertain and the general elections to come, programmed for the autumn of 2016. The revision of the public payment law could increase the pressure on the expenditure and amplifies the risk that Romania will get back into the procedure of excessive deficit’ the WB report says.
In this context, the WB recommends that structural reforms concentrate on the sector of energy, the state run companies and the improvement of the quality of public expenditure. Moreover, it is necessary to resume the efforts to improve participation on the work market, as the rate of unemployment is high among young people and the low-qualified people.