IMF to review stand-by deal with Romania in June-July

By bne IntelliNews May 20, 2014

An IMF expert team will visit Romania first in June and afterwards in July to review the two-year stand-by arrangement signed last autumn, budget minister Liviu Voinea was quoted as saying by news agency Agerpres.

The planned budget adjustment will be operated at the Fund’s second visit, Voinea said. In the meantime, budget revenues should strengthen in line with the economic activity, he added.

A key issue to be discussed with the Fund in regards to the budget is the planned cut in the social security contributions. Given the schedule, it is impossible to enforce such a move as of July - while a final decision will probably be postponed until the revenues support it.

Romania’s government cannot afford cutting the social security contribution rate as it intends to do, as long as it collects less money than planned, the head of the independent fiscal council, Ionut Dumitru, has warned. The government has to improve the collection rate first, he stressed. The impact of a 5pps cut of the social security contribution rate would be RON 2.5bn in H2 – or RON 5bn [EUR 1.1bn, 0.8% of annual GDP] per year, the fiscal council estimates.

Romania and the IMF agreed to cut this year the budget deficit to 2.2% of GDP under both the ESA and cash methodology. Last year’s cash deficit was 2.5% of GDP and was around 2.2% of GDP under ESA as the government struggled to cut the payment arrears.

First-quarter revenues were however disappointing despite the stronger than expected GDP performance. In the quarter, the tax revenues fell RON 1bn [EUR 220mn, 0.16% of annual GDP] below target. But the enforcement of the higher car fuel excise tax as of April and of the special fixed assets tax payable starting May are expected to boost the government’s revenues.

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