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Additional cost cutting measures, a prerequisite for the next disbursement from the IMF

Today the IMF mission presented the results of the fourth review of Romania's stand-by arrangement:

- The next disbursement from the IMF (around EUR 900 million) depends on the actions of the government in terms of reducing current expenditures and it could be released by the end of June

- The government agreed to cut public expenditures while maintaining unchanged the VAT at 19% and the flat income tax at 16%

- The public sector wage bill will be reduced by 25% as of June

- Pensions and other social allowances will be reduced by 15% as of June

- IMF forecast for real GDP: 0% or slightly negative in 2010, +3.6% in 2011

- Budget deficit target agreed with the IMF: 6.8% of GDP in 2010 (from a previous 5.9%), 4.4% of GDP in 2011

- In a scenario consistent with no additional measures undertaken by the government in 2010, the budget deficit would have reached 9.1% of GDP

- The efforts for reducing tax evasion should be intensified

- The arrears target for 1Q10 has been missed and the Fund discussed additional measures with the government to bring the situation under control in the future

Market reaction: RON appreciated strongly to 4.15.

Besides the continuation of the stand-by arrangement with the IMF, the significant adjustment of the C/A deficit to less than 5% of GDP from double-digit levels before the onset of the economic recession also works towards RON strengthening in the mid and long-run. A fiscal consolidation plan based on cuts in expenditures, instead of increases of some major categories of taxes, is in line with market expectations and government yields could consolidate around the key rate.

Sursa: http://www.bcr.ro

Tags: government measures additional

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