A joint mission of the IMF, EU and the World Bank is in Bucharest until August 13 and talks with the Romanian authorities will result in a new letter of intent, which will be signed as a conclusion to the current review.
In April 2011, Romania and the IMF signed a EUR3.6 billion loan agreement, a successor to a larger EUR20 billion international bailout package received during 2009-2011.
The discussion of fiscal changes with a major impact, such as cutting VAT on agri-food products and the progressive taxation of income has been put off until November, when the 2013 budget is analyzed, so such measures have no chance of entering into force sooner than January 1 of next year.
In principle, the IMF stance is that budget deficit targets must not be jeopardized and that cutting VAT on food is not a very good measure, in part because of the poor administrative ability of the Finance Ministry.
“Our international partners will hand to us the letter of intent, which will contain the result of the negotiations. On Friday, Saturday and probably Sunday too we will discuss the text and reach consensus on the wording and on all figures,” finance minister Florin Georgescu said on Wednesday after the meeting with the delegation of the IMF, the European Commission and the World Bank at the HQ of the Romanian Government.
The Government is still fighting to get the IMF’s consent for implementing the payment of VAT upon cashing in invoices instead of upon issuance for companies with turnovers of up to EUR500,000 – a welcome measure, according to many businesspeople.
“We will discuss the deadline this weekend. It will be January 1 of 2013 at the latest, but I admit we would like to do this sooner. I hope we’ll have a decision by Monday,” said prime minister Victor Ponta after the talks with the joint mission of the IMF, European Commission and the World Bank. The meeting was also attended by the PM’s advisor Daniel Daianu.
The prime minister said Romania would show discipline and not make any changes to its taxation system without the consent of international creditors. However, when government coalition parties PSD and PNL were in opposition, they were very critical of the government’s submissive attitude to the IMF.
It is not yet known if the Government will be able to implement as early as this year the other measures aimed at stimulating the economy, such as exempting from the payment of CAS (social security contributions) those companies that hire unemployed aged less than 25 or over 55 and exempting from payment of penalties those companies with debts to the state budget which pay their principal and interest rates.
The implementation of important fiscal relaxation measures or of measures meant to help restart the economy in 2012 would put pressure on the budget, especially since the economy is moving very slowly.
A new increase to the budget deficit target would be impossible to accept by the international creditors because at the preceding review the IMF agreed to raise the deficit from 1.9% of GDP to 2.2% of GDP. Finance minister Florin Georgescu said in fact that the budget deficit target for this year remains at 2.2% of GDP.
(English version by Daniela Stoican)