IMF: Romania does not need financial assistance

English Section / 5 octombrie 2023

IMF: Romania does not need financial assistance

Versiunea în limba română

The International Monetary Fund estimates that we will have an economic growth of 2.3% and a budget deficit of 6% this year

Romania does not need financial assistance from the International Monetary Fund (IMF) and there is no need to increase the VAT, stated, yesterday, the head of the IMF mission for Romania, Kees Martijn, during a press conference that took place at the end of the consultations with the Romanian authorities.

Asked if Romania discussed with the IMF about the possibility of concluding a loan agreement, Kees Martijn stated: "We reiterate the fact that it is important for Romania to put public finances on a healthy path, making an appropriate restructuring of the fiscal area. We see that the fiscal package will be a very important first step in this direction. Regarding IMF support, the first thing I want to mention is that every member country has the right to request IMF assistance. But, at this stage, we do not see the need for Romania to do this and we do not see such a necessity arising, which is why we did not have such discussions with the authorities".

Asked about the possibility of introducing progressive taxation, the IMF official said that this topic was discussed last year, stating: "The possibility of progressive taxation is a topic that I discussed a year ago with your authorities and it turned out that a necessary first step is that of cleaning the fiscal system. As for legislative gaps, exemptions and preferences, then the single tax you have now will no longer be able to exist and you will have to think about a progressive tax. You must first make sure that everyone pays their fair share, and the fiscal package provided a first step in that direction."

Asked if there is a need to increase the VAT by two percentage points if the fiscal package will not come into force, Kees Martijn said according to Agerpres: "We talked about the range of measures regarding revenues that could help reduce the fiscal deficit in 2024 and after this year. They are growth-friendly measures and we believe that many or all of the adjustments can be made with these measures. We hope that this will be possible to avoid more drastic tax increases, such as the VAT increase, but we realize that the Government has all the tools on the table and at this moment we do not propose such an increase".

In the press release published at the end of the visit to Romania, the IMF showed that other tax reforms are necessary to increase revenues, efficiency and fairness. "An increase in revenues of over 2% of GDP, apart from those brought by the recent fiscal package, will be necessary in the next two years", emphasizes the IMF.

The experts of the international financial institution believe that the main measures that the authorities in Bucharest should think about are: the elimination of exemptions, privileges and remaining loopholes, a new efficiency of VAT, the implementation of a reformed property tax and the use of fiscal policy to promote efficient use of energy and, more broadly, encouraging the transition to a carbon-neutral economy.

The IMF mission, led by Jan Kees Martijn, visited Romania between September 22 and October 4 for consultations with the Bucharest authorities based on Article IV of the IMF Statute. Such consultations take place periodically with all IMF member states.

IMF: Budget deficit of 5% of GDP in 2024, in Romania

The International Monetary Fund (IMF) estimates an economic growth of 2.3% for Romania this year, respectively a budget deficit of 6% of GDP.

According to the Fund, the fiscal package recently adopted by the authorities will lead to a budget deficit of 5% of GDP in 2024, but new adjustments will be needed because, as agreed with the European Commission, the deficit must fall below 3% of GDP , notes Agerpres.

IMF experts have shown, in context, that the new fiscal package broadens the tax base and improves revenues by eliminating exemptions for employees in agriculture, construction, food processing and IT, as well as limiting the number of goods that benefit from a reduced VAT rate. They also argue that the increase in the tax on micro-enterprises will lead to an increase in tax revenues, but they believe that the threshold for registration as a micro-enterprise should be reduced even more.

On the other hand, the international financial institution mentions that the turnover tax imposed on banks and large companies puts an unfair burden on companies with low margins and could reduce financial intermediation.

"The extent of additional fiscal adjustments, via spending cuts and improving spending efficiency, is limited," IMF experts argue, adding: "Current spending revisions are welcome and, over time, could make government spending more efficient, but it is unlikely to lead to significant savings. Moreover, supporting the elderly population, solving social needs and improving public services, especially the education and health system to EU standards, requires well-focused and appropriate spending".

In addition, they emphasize that the fiscal policy must be well planned and clearly communicated, in order to provide predictability to households and companies. The IMF points out: "Ad hoc tax changes, in response to urgent fiscal needs, create uncertainty and undermine planning capacity. In this sense, the establishment of a fiscal policy division at the Ministry of Finance is welcome. This should help to develop a medium-term revenue strategy and to plan, design and analyze fiscal policies prior to design and implementation. Increasing the predictability of public sector pension and salary expenditures is also important and the planned reforms in these areas, in the context of the PNRR, are vital".

According to the institution, the inflation rate will decrease from 7% to 4% at the end of 2024, but remains above the target of the National Bank of Romania.

Ciolacu: "The government is committed to supporting economic growth"

The government is "strongly" committed to supporting economic growth, reducing public spending and combating tax evasion, Prime Minister Marcel Ciolacu said yesterday, during the meeting with the IMF delegation led by Jan Kees Martijn. His Majesty said: "Our economic growth is based on investments. We support infrastructure projects as a priority, especially in transport, considering the fact that investments in this field have the highest degree of multiplication in the economy. We pay the same attention to investment projects in health and education, because we are equally concerned with increasing the quality of life of our citizens".

The Prime Minister also mentioned the government projects for the direct support of development and investments in the construction materials sector and in the food industry, also pointing out the importance of the draft law on which the Government assumed responsibility before the Parliament for the consolidation of budget revenues.

The Prime Minister explained: "In order to reduce budget expenses and combat tax evasion, the digitization of ANAF at an accelerated pace is a national priority. All state institutions with attributions in the field - the Ministry of Justice, the Ministry of Finance, ANAF - have as a priority the establishment of special measures to combat evasion and to increase the collection of budget revenues. At the same time, through the draft law on which we pledged our responsibility before the Parliament, we will create the legal framework for the ministries to reorganize by abolishing or merging the subordinate authorities".

According to the Government, the head of the IMF mission in Romania, Jan Kees Martijn, "appreciated the image enjoyed by the Romanian economy, which is growing and has a significant role in the region".

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