As the Executive Director of the IMF Constituency to which Romania pertains, I would like to send a message of confidence and encouragement along three main lines.
First, Romania is undoubtedly a success story in the region. Its euro-denominated GDP increased eight times in the last 20 years. Membership of the European Union in 2007 certainly contributed to that and there has not been another country to converge faster within the EU in terms of income per capita – from 30% of the EU average in 2007 to 74% in 2021. The growth has been uneven across regions, but overall progress remains impressive and has not slowed down even during the Global Financial Crisis or the pandemic. The quality of growth has also improved, as the structure of the economy moved from relatively inefficient and polluting industries and low value-added processing to higher value-added manufacturing and IT products and services. Over the years, the private sector in Romania has shown a remarkable resilience and a strong capacity to adjust.
Benefitting from political stability due to a grand coalition, the policy mix in 2022 was broadly appropriate; therefore, growth exceeded even revised expectations and the budget deficit met its target despite the very challenging international context characterized by higher energy and food prices and the Russian invasion of Ukraine.
Acknowledging Romania’s strong economic performance, improved institutional framework, and shared values, the OECD invited Romania to start accession discussions – a process that I hope will be finalized soon. The IMF also moved Romania to the category of systemically important jurisdictions for the international financial system due to its increased interconnectedness with other systemic jurisdictions and the increased exposure of foreign investment funds to Romania’s public debt.
Romania achieved its successful development over these years in close cooperation with international financial institutions, including the IMF. At difficult junctures, the IMF stepped in and covered financing needs, while pushing for transformational reforms in critical areas such as fiscal consolidation, building up fiscal buffers, eliminating arrears, and enhancing SOEs’ governance. In recent years, the IMF has intensified its technical assistance to Romania on issues such as public investment management, VAT collection, and property and income taxation.
Moreover, Romania is not only a recipient of technical assistance, but also a provider of know-how, experience, and financing, especially to countries in the region. Romania’s ties to Moldova, another member of our Constituency, have been strengthened by numerous joint projects – from financing gas pipelines and kindergartens to central bank twinning arrangements and training.
Second, Romania provides a powerful example of why central bank independence matters. In 1991, I was among the first IMF staff who advised the National Bank of Romania on strengthening supervision and developing market operations. Central bank independence has not only been established by law -and more recently by the European treaties- but it has also been achieved and maintained through prudent monetary and exchange rate policies, enhanced supervision, state-of-the-art macroprudential policies, and strong leadership. As a result, inflation is likely to have peaked, and is expected to be on a downward trend in the next quarters. While challenges remain in times of heightened uncertainty, price stability and financial stability are well served by an independent central bank.
Third, going forward, Romania has a strong growth potential, provided that two conditions are met: a full absorption of European funds and a gradual fiscal consolidation based on structurally enhanced revenues. We support the government’s agenda, which is mainly driven by EU-financed investments and reform milestones. 2023 will be an exceptional year, when Romania needs to take a leap from a 4–5-billion-euro average annual EU funds absorption to more than 10 billion euro take-up – due to the concomitance of the last year of the 2014-2020 structural funds, the beginning of the 2021-2027 structural funds, and the advance of the RRP funds. Gross fixed capital formation together with the RRP focus on climate and digitalization represent the foundation for sustainable growth.
The IMF highlights the importance of a shift towards growth-enhancing policies while keeping public finances in order. Hence, it recommends that Romania pursue a growth-friendly fiscal consolidation by making the tax system more equitable, reducing tax exemptions, broadening the tax base and tax reporting, and containing pressures on aggregate demand while protecting the most vulnerable. By doing so, fiscal policy would help monetary policy fight inflation and would reduce the current account deficit, which has been is a source of concern.
The fact that Romania does not depend on Russian gas imports and that it is still far from tapping into its full energy production potential should mitigate the risks of the transition toward a carbon-neutral economy. The country can further enhance its role in the region by becoming a secure transport hub in a world where global supply chains are replaced by shorter and faster regional supply linkages.
Finally, I would like to commend the Romanian authorities for their extensive support to Ukraine, another important member of our Constituency, and to the millions of Ukrainian people who fled their country. Romania is a source of stability and economic development in the region, and from this position, it can help Ukraine and Moldova in their EU accession process and take the whole region to the next level.
Paul Hilbers, a citizen of the Netherlands, has been Executive Director for Andorra, Armenia, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Georgia, Israel, Luxembourg, Moldova, Montenegro, The Netherlands, North Macedonia, Romania, and Ukraine since November 2020.
Paul studied mathematics and econometrics and obtained a Ph.D. in international economics from the Free University in Amsterdam. He joined the Dutch Central Bank (DNB) in 1985 and was seconded to the IMF in 1989. During his 16-year tenure at the IMF, Paul worked in various positions as adviser and division chief at MCM and at the European Department. He returned to DNB in 2009 to assume the position of Director Supervision Policy and became Director Financial Stability in 2015.
Based on his remit at DNB, Paul held various international positions, including at the Basel Committee, the European Central Bank, the Bank for International Settlements and the Financial Stability Board. Paul has also been a professor in Financial Sector Supervision at Nyenrode Business University since 2010. He authored numerous national and international publications in such areas as financial sector analysis, banking supervision, international economic relations and macroeconomic policy.