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IMF says VAT cut for basic food products must not be accepted

Having pensions also raised ahead of the time set and the raise, beyond expectations, of salaries in the public sector, are the key risks in terms of the country macro-economic stability.

The experts of International Monetary Fund (IMF) recommend the authorities in Bucharest to firmly oppose the initiatives related to VAT cut for basic food products and those related to raising pensions in advance as to the initial time period set, which is January next year, according to Rompres. The recommendations are included in the final declaration drawn up by IMF mission who has recently visited Romania in relation to the annual consultations regarding to the economic development. The document is published on the web site of the international financial institution. According to IMF, a possible cut in the VAT level for certain food products, having pensions raised ahead of the time set and the raise, beyond expectations, of salaries in the public sector, are the key risks in terms of the country macro-economic stability. The Senate has already approved the VAT cut draft, from 19 per cent to 5 per cent, for basic food products. According to the IMF, the fiscal cost incurred by this measure for the whole year could account for 0.5 per cent of GDP, depending on certain implementation details. At the same time, the Romanian authorities should change the current fiscal approach, focused on short term, so that multiple budgetary reappraisals should be reduced, the decision – making modalities through emergency ordinances should be reconsidered and all budgetary expenditures and revenues should be defined against the already approved legislation. The third measure mentioned by the Fund refers to the establishment of an independent fiscal agency. In time, the role of such an agency should be extended in order to provide surveys on specific budgetary propositions. “Yet, the mission thinks that a deficit target of around 1.75 per cent of GDP would have been more appropriate. In addition, the mission thinks that the forecasts related to the budgetary revenues are much too optimistic, and expenditures will have, most likely, to be adjusted in keeping with resources, even within the context of a rather relaxed budgetary target,” according to the document that outlines IMF conclusions. Referring to the Romanian economy evolution, the IMF analysts indicated two scenarios – one within which development continues at a high level and another one when the economic growth pace slows down considerably. The central bank is advised to continue monitoring and limiting operational risks in the banking system, considering that several lending institutions focus on earning, in an aggressive manner, a market share, including by promoting lending in exotic currencies, such as Japanese Yen or Swiss Franc. Pension benefits may be raised 2 months ahead of schedule Labour Minister Paul Pacuraru states that pension benefits may be raised once again this year, according to the Money Channel TV. Pacuraru says pensions may be increased in November, rather than on January 1, 2009 should the budget enable it.“This transfer to Pillar 2, adding to which is the 45 per cent increase, will generate a significant deficit in the social security budget, accounting for 3 per cent of GDP,” says Mihai Tanasescu, representative of Romania with the IMF.But Labour Minister Paul Pacuraru argues that pensions will be increased, because a budget surplus of over EUR 80 M was achieved in the first three months of 2008.The pension point was raised in 2008 to 37.5 per cent of the average whole-economy salary, and reached RON 581. As of 2009, the pension point is scheduled to reach 45 per cent of the average salary, i.e. RON 740. Sursa: http://www.nineoclock.ro

Tags: should budgetary according raised products pensions basic

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