The authorities have also failed to reduce state budget’s arrears, canceling the progress made last year, citing the need for spending in hospitals.
The Government will carry out a comprehensive analysis to determine the causes for this increase in arrears, and will request technical assistance to amend the Law on local public finance again, including provisions on the distribution of funds between the various local entities.
According to the agreement with the International Monetary Fund (IMF), arrears are debts overdue by 90 days or more.
The Government had undertaken to reduce the state budget and social security budget arrears to 80 million lei (EUR18 million) in the first quarter, after having cut the debts constantly over the last 18 months from RON190 million in December 2010 to RON90 million in December 2011. However, the arrears have now increased to RON120 million, making it hard for the Government to meet the following target, entailing a cut down to RON60 million in only three months, by the end of June.
It is the same with the local budget arrears, which the authorities had promised to reduce to RON700 million, following previous drops to RON750 million in December 2011. This target has also been missed, and the debts now stand at RON790 million; they must be cut to RON500 million by the end of June.
The law on local public finance was last amended in November, when the Government reduced the share of income tax collections provided to local authorities by 5.5 points.
Before this amendment, the IMF stated that the state’s central arrears had been almost completely eliminated and that new legislation allowed better control on local level, so the authorities should turn their attention to the arrears of state companies. The Government also said that the new Law prevented the accrual of new debts. (EUR1=RON4.4639)