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January 28, 2022

1.7-1.9 pc of GDP decrease in 2010, economic growth in 2011

These are Fin Min and specialists’ forecasts. Talks with IMF do not target tax hikes. EBRD is less optimistic, anticipates 3 pc GDP decrease.

National authorities remain optimistic until IMF representatives make public their official economic forecast for this year and for next year at the end of their mission to Romania this Wednesday.

Economic development can confirm that the economic figures this year will be close to the ones announced by Finance Minister Sebastian Vladescu (economic decrease by 1.7-1.9 per cent – editor’s note). Vladescu also said talks with the IMF did not target any further tax hikes for this year or for 2011.

“The IMF mission does not bring any change in taxes and other fees,” the minister of finance said. He added that Romania needed the agreement with the IMF and that the letter of intent was in the making.

PM Emil Boc reiterated yesterday, during a videoconference with prefects, the fact that IMF and European Commission representatives did not request Romania to hike the VAT or the flat tax. “We have no difficulties in our relations with the EC, the IMF in our agreements and we are on the way to consolidate the stability related to fiscal policy for this year and the next one,” PM Boc said.

He added however that the economic drop might be bigger than forecasts, for at least two reasons. “First of all, because we were forced to change the VAT, following the Constitutional Court ruling (editor’s note – to declare pension cuts unconstitutional). Secondly, because of floods. And thirdly, because of the world economic context we’re in at the time. (…) What seems to be take shape at the time, both from the IMF and EC and from Romanian authorities, is that we will have economic growth in 2011. How much? We will see after the analyses we are conducting with our European partners and the IMF,” Boc said.

Romania’s representative at the IMF Mihai Tanasescu keeps his optimism regarding a possible recovery of economy in 2011.

“We may have positive economic growth next year. It is very clear. We still need to decide on how big it will be,” Tanasescu said. He explained that the economic growth expected in 2011 would be fuelled by two main components: export and aggregated consumption. “We will have good economic growth after two years of recession,” Tanasescu continued.

At the beginning of last week, the IMF head of mission in Romania, Jeffrey Franks, in turn, said he was more optimistic than some analysts regarding Romanian economy performance in 2011 and that the GDP might start growing again.

The new forecasts on the economy are more optimistic than those put forth by other sources. EBRD and Erste Bank estimate there will be a contraction of the GDP by 3 per cent, and Capital Economics forecasts a fall by 2.5 per cent. The Austrian group estimates that the economy will be affected by the raising of VAT from 19 to 24 per cent. The GDP will start growing in most Central and Eastern European countries, backed mainly by exports, in the context in which demand on local markets remains low.

Renewed partnership with IMF and EC could be initiated in October

Talks for a renewed partnership with the IMF and the European Commission could be initiated on the next mission to evaluate the present agreement, in October, Tanasescu further stated, adding that, in his opinion, a new loan would not be necessary.

“(…) If you want my personal opinion, as an economist, the partnership with the IMF and the European Commission should be maintained. In principle, I believe such a partnership is beneficial. (..) I don’t think a new loan is necessary,” Tanasescu added. At the beginning of last week, Franks stated that talks of a new agreement between the Romanian authorities and the international financial institution were premature and that they would be carried out “at some point.”

Tanasescu mentioned that the Government’s adoption of measures agreed upon with the IMF were proof of authorities’ determination and that, therefore, representatives of the financial institution would leave Bucharest with a good impression. When asked whether there may be any problems regarding the payment of the next instalment in the agreement, amounting to EUR 900 M, he replied: “Definitely, no.”

The decision regarding the payment of the next instalment will be made by the IMF board, based on analyses conducted during the evaluation mission. At the same time, Romania’s representative to the IMF underlined that talks between the Government and the IMF would not lead to supplementary measures for 2010 and 2011, so that a new wage cut is not envisaged, the only course of action being the enforcement of existing wage cuts to meet the budget deficit target.

“At the moment, we need to meet the limit of staff expenses, which we committed to in the agreement with the IMF. It is the main thing to do for fiscal consolidation,” Tanasescu concluded.

A joint economic mission made up of IMF and European Commission specialists is in Romania starting from July 26 until August 4, in order to discuss with Romanian authorities the fifth revision of the stand-by agreement and to evaluate the performance criteria set for the end of June 2010.

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