OECD recommends Romania first tackle inflation and then boost budget revenues

Romania should keep a tight monetary policy until the inflation is clearly on track to meet the central bank's target as an immediate task for the macroeconomic policy, then it should achieve greater tax revenues to fund priority spending – including on critical infrastructure, pensions, health care, and the education system, according to OECD's Economic Survey for the country published on March 12.

The OECD expects Romania's GDP to grow by 3.1% in 2024 and 3.3% in 2025 (without reaching the potential level, though), up from 2.0% in 2023.

High levels of investment will support the economy together with recovering external demand, while cost pressures on households gradually ease.

However, high interest rates, tax increases, and sluggish employment growth will keep private consumption growth moderate in the short term compared to recent historical averages.

Investments will remain at a high level, supported by EU-funded infrastructure projects. Exports will gradually recover with the improvement of the economic situation in Europe.

Output growth below potential will limit job creation over the next two years, keeping unemployment above pre-pandemic rates as wage growth moderates.

The fiscal gap is seen at 5.8% of GDP this year and in 2025, a slim improvement from 6% in 2023, according to OECD's forecast on the most sensitive sector of Romania's economy (public finance).

Romania collects the lowest taxes in the European Union, and if it were part of the OECD, as it hopes, it would still be at the bottom of the ranking.

"[In terms of budget revenues] Romania is far below the OECD average. A route towards progressive taxation could have a better result," said Mathias Cormann, Secretary General of the OECD, at the presentation of the report on Romania in Bucharest, touching on a sensitive topic among Romanian politicians, Ziarul Financiar reported.

The tax burdens on low incomes are too high, which is one of the conclusions of the OECD report.

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