Romania: unwinding imbalances – need for fiscal consolidation

Romania's domestic demand boom over the past few years has led to rapidly widening current account deficits, reaching an estimated 13½% of GDP in 2008. High private sector dissaving has been exacerbated by a procycylical fiscal policy, with the public deficit likely to exceed 3% of GDP in 2008. Correcting these imbalances has been complicated by the international financial crisis and its spillovers to the real economy. To rebuild investor confidence, the new government will need to urgently reverse Romania's expansionary fiscal policy and pass a credible fiscal consolidation package.