BUCHAREST, Oct 2: The International Monetary Fund urged Romania on Tuesday to plan fiscal policies better in the longer term in order to offset political and economic risks to sustainable growth.

Following a regular mission to the new European Union member, the Fund said it remained concerned about Romania’s external imbalances, demand pressures stemming from fiscal policy and potential overheating of the economy.

“A medium-term fiscal perspective is very much missing,” IMF mission chief Albert Jaeger told a news conference.

“There are political uncertainties, there is a fragile political environment ... Medium term-oriented policy framework ... may help discipline politics,” he said.

The Fund urged Bucharest to tighten fiscal plans, saying current budget targets raised the risks for the buoyant economy and urging it to cut next year’s planned deficit to less than two per cent of GDP.

“If the fiscal target for 2007 is reached, it will be a very large fiscal pressure which will add to overheating pressures,” Jaeger said.

Romania targets a shortfall of 2.8 per cent of GDP this year, but Brussels has said its own calculations put it above the bloc’s three per cent cap.

Analysts warn that spending plans may be erratic as Bucharest’s centrist minority government struggles to survive and opposition parties push to boost flagging ratings.

Jaeger also said in the context of an uncertain outlook for inflation, the central bank’s current “wait-and-see” approach to monetary policy was “appropriate”.

“It is unclear how to extrapolate fiscal pressures going forward,” he said, pointing to wage demands and spending pressures as key risks.

The bank has cut interest rates by 175 basis points this year but has kept them unchanged at seven per cent since June.

Romania has registered fast growth in recent years, expanding by 7.7 per cent in 2006, on the back of robust foreign investment and voracious domestic consumption as companies race to modernise and Romanians improve their living standards.

The IMF expects the Romanian economy to grow evenly, expanding by six per cent this year and next, slightly below government forecasts.

But it sees the current account deficit, Romania’s main economic headache, expanding to 14 per cent of GDP this year, from 10 per cent in 2006.

On the leu, Jaeger said the currency was likely to continue appreciating nominally over the medium to long term, despite a recent slump to 2007 lows versus the euro.

“We would expect that in an economy like Romania ... to see the same nominal appreciation that we have seen in other transition economies ... as long as inflation remains contained,” he said.

The leu hit its lowest level this year at 3.4303 per euro in September as foreign funds worried about the sustainability of economic growth.—Reuters