The implementation of all the measures in the programme of the Romanian Government announced before the election would generate additional costs of 5.5 percent of the Gross Domestic Product (GDP) in 2017-2020, according to head of the International Monetary Fund (IMF) mission in Romania Reza Baqir.
He said that if all measures announced before the election were to be implemented – besides a uniform public pay law – namely cuts in the social security contributions, introducing differentiated income taxes on individuals, cutting the Value-Added Tax (VAT), dividends paid by the Government-run companies and zero VAT on real estate transactions, additional costs of 5.5 percent of the GDP would be generated.
He went on to say that the estimates do not include second round effects, because there is no making correct before the entire package is known. Baqir said the 2017 estimates include the second round effects, but the estimates for 2018 and the years to follow do not.
IMF estimates 3.7 percent budget deficit for 2017
The International Monetary Fund (IMF) estimates a 3.7 percent budget deficit for this year and a 3.9 percent deficit for 2018, head of the IMF mission for Romania Reza Baqir told a press conference on Friday.
For this year, we estimate that, if no other measures are taken besides those already included in the budget, the projected deficit will be 3.7 percent of the GDP. While the deficit is estimated at 3.7 percent in a scenario in which policies don’t change, we see some problems presetting next year. After our estimations, we forecast next year’s budget deficit to reach 3.9 percent of the GDP. I would like to point out that our estimations for next year will modify when the discussions on the 2018 budget are carried out. Our information so far are based on what was included in respect to 2018 in the 2017 budget, and on the effects of some policies that are already taken into account, such as the increase in the pension point that must come into force this year, said Baqir.
According to him, on an average term, to have a comfortable position, a deficit of round 1.5 percent of the GDP is sufficient to keep the public debt on a descending trend.
A 2.3 percent of the GDP deficit for this year and 2 percent for 2018 would contribute to reaching this goal. For 2018, a 2.3 percent of the GDP deficit would be what economists call a neutral opposition from a fiscal stand, the IMF official showed.
In the beginning of March, the Public Finance Ministry gave guarantees that Romania will meet the under 3 percent of the GDP deficit target.
The difference between the European Commission’s and Romania’s estimations in respect to the budget deficit for 2017 is the result of implementing different estimation methodologies, but the Romanian authorities assumed a governance programme that will observe the under 3 percent of the GDP deficit target, reads a release of the Public Finance Ministry.
Budget deficit can be reduced by making expenditure efficient, delaying pension point increase
The authorities could reduce the budget deficit by making expenditure efficient, using European funding, fiscal administration reform and delaying the increase of the pension point, head of the IMF mission for Romania Reza Baqir also told a press conference on Friday.
He said that there are many measures that can be taken into account (in order to reduce the budget deficit -e.n.). The most important is increasing the efficiency of costs, as well as the use of several investments funded by the European Union, also speeding-up the fiscal administration reform within the National Agency for Fiscal Administration (ANAF). He said that on the area of collecting the VAT, Romania has the biggest gap. By gap he meant the difference between what Romania could collect and what is actually collected. These are methods through which the deficit could be reduced, he said. He added that another measure could consist in delaying the increase of the pension point that is to be introduced during this year.
Head of the IMF mission to Romania: There are big discrepancies in salary structure in budget system
The inequities in respect to the salaries in the budget system should be solved, as there are big discrepancies, head of the IMF mission for Romania Reza Baqir told a press conference on Friday.
In respect to the unitary pay law, the inequities in the system should be solved. There are big discrepancies or big differences in the pay structure. Solving these inequities is important. Our message is that it would be useful to take into account a few aspects among which the need to closely follow the evolution of productivity, Baqir said.
According to him, the salaries in the budget sector should serve to the employment of some talented and resourceful young people who can do their job well.
The private sector can equally benefit from this. It is also very important that the decisions made in respect to this law don’t distort the market in the sense of the private segment and the public one, the IMF official also showed.
“Successive legislation modifications made budget rigid; no more room for tax reductions”
The successive legislation modifications made the budget structure be a rigid one, which can deal less with possible socks and vulnerabilities, head of the IMF mission for Romania Reza Baqir told a press conference on Friday.
I want to tell you that the successive fee and tax reductions and the successive measures of increasing pensions and salaries based on public investments led to a budget that has a less flexible structure, which can deal less with possible shocks and vulnerabilities. It is comparatively easier to cut fees and taxes, but it is much harder to increase them. Similarly, it is easier to increase salaries in the public sector, but harder to cut them, Baqir said.
According to him, there is no more room for other fee and tax reductions if the aim is maintaining the budget flexibility.
The objective of maintaining taxation prudence would be best attained granting attention to the discussion on the unitary pay law and improving the quality in other spending, such as that on a regional level, amounts transferred from the state budget to regions, the IMF official also showed.
According to the modifications to the Tax Code, as of 1 January 2017, the VAT quota was reduced to 19 percent, the tax on dividend was cut to 5 percent, and there were eliminated the fee on special constructions and the over-excise for fuels. Moreover, the cap for pension and healthcare contributions was eliminated, which had been established at the equivalent of 5 gross average salaries per economy.
“Speeding-up IPOs such as Hidroelectrica can raise Romania to emergent market status”
Listing companies owned by the state such as the Hidroelectrica would raise Romania to the status of emergent market, and the cost of lending would drop, head of the International Monetary Fund (IMF) mission in Romania Reza Baqir told a press conference on Wednesday.
He said that the enterprises of the state (SOE) were part of their programme for some time. Moreover he stated that the progresses within the privatization process stagnated and added that it’s essential for reforms in these area to be sped-up. He talked about the fast implementation of the provisions of the Law No.111/2016 regarding the corporative governance, that also refers to the boost of some IPOs that are taken into account, such as the Hidroelectrica, where the next step is the appointment in April of the Supervision Council. He added that such IPOs if successful would contribute very much to the raise of Romania as an emergent country by the investment banks, this thing having many benefits for Romania, including the cut of lending cost.
In respect to the European funds he mentioned that an absorption of 100 percent would increase the potential GDP.
He stated that there is a general agreement and consensus on the level of authorities and other parties involved in respect to the progresses made and to the objectives of recording progresses. According to their estimations a potential growth of Romania would gain a percentage if the European funds’ absorption rate is increased up to 100 percent.
The shareholders of the Hidroelectrica recently extended until 7 August 2017 the commitment letter with the Morgan Stanley&Co International plc and Raiffeisen Capital & Investment SA brokerage syndicate, in order to list the energy producer on the stock market.
Earlier this year, the President of the Bucharest Stock Exchange (BVB), Lucian Anghel was explaining that listing the Hidroelectrica could upgrade Romania to emerging market status, and one effect would be the increase of pensions for 6 million Romanians.
In 2013, the Government decided to list the company on the BVB, by increasing the capital and launching an initial public offering for the sale of newly issued shares of a package representing 15 percent of the existing share capital before the increase.
Within this process, following an auction organized in January 2014, the the brokerage syndicate made-up of Morgan Stanley and Raiffeisen was selected, and a commitment letter was signed in February 2014.
The Romanian state owns 80 percent of the Hidroelectrica, through the Energy Ministry, and 20 percent represent shares owned by the Fondul Proprietatea.
Romania’s perception in region is postive in terms of fight against corruption, maintains IMF mission head
Romania’s perception in the region and on an international level is a positive one in terms of the fight against corruption, head of the IMF mission for Romania Reza Baqir told a press conference on Friday.
In the latest report of the team, we discussed the importance of the fight against corruption and progress. For the IMF, this fight against corruption is very important. In the key-area where we provide assistance, such as the fiscal administration, the improvement of the public spending efficiency, we have said each time that there is a bilateral relation, Baquir said.
According to him, the fight against corruption contributes to making spending transparent and efficient, as well as to drawing investment.
Romania’s perception in the region and on an international level is positive. We’ll continue to underscore the importance of this area and obtaining results in the battle against corruption will help Romania, not necessarily as such, but through the effects it has on the economy, the IMF official highlighted.