Romania’s economy shows signs of overheating considering the rising inflation rate and the wider fiscal and current account deficits, the International Monetary Fund (IMF) warns.

The IMF is also worried about the low level of investments in the local economy and slowdown in structural reforms.

“Economic growth is expected to again exceed potential in 2018 with elevated inflation, but slow down over the medium term assuming the fiscal stimulus wanes. With signs of overheating, however, there is a risk that the current policy trajectory increases macroeconomic volatility, wears down buffers, and ultimately slows down convergence toward the advanced EU countries,” reads the IMF report after the institution’s mission to Romania in April.

The report warns that further deterioration in fiscal and external balances or a weakening of institutions could disrupt investor confidence.

“External and domestic shocks could coincide and weaken confidence and capital flows.”

The IMF slightly improved its estimation on Romania’s economic growth this year, to 5.1%, up 0.6 percentage points over previous forecasts. However, next year, the growth rate may go down to 3.5%, according to IMF forecasts.

editor@romania-insider.com