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October 7, 2022

High risk of 9 pc VAT is dramatic fall in budget revenues

Economy needs quiet. At this time however there is sufficient political maturity for there to be a dialogue that would create a predictable outlook, Mihai Tanasescu, Romania’s representative with the IMF, stated.

The introduction of a 9 per cent VAT for foodstuff could lead to a drop in tax evasion but not necessarily to a drop in prices, Mihai Tanasescu, Romania’s representative with the IMF and Vice President of the European Investment Bank, stated. “We have to be very careful when applying such a measure. Theory does not always equal practice,” Tanasescu added in an interview for RFI, pointing out that the Fund’s mission will analyze this aspect too.Asked what the highest risk of a 9 per cent VAT for staple food is, Mihai Tanasescu answered that the risk would be a dramatic drop in budget revenues from this sector of activity. “At the same time, there is also a positive effect, in the sense that consumption might grow, and more budget revenues would result from a higher rate of turnover,” he explained. Concerning the situation on the political scene, the IMF representative considers that any continuation of political turbulences can influence the economy. He claims that “the economy needs calm” following the political turbulences in recent weeks which culminated with the impeachment referendum. “All these political turbulences could not leave the economy indifferent. During these weeks I noticed powerful pressures on the exchange rate, powerful pressures on the way in which the economy worked. However I believe that at this moment the most important message that the political can give to the economic is that of stability, of starting a new stage of cooperation. And I say this in a fairly tight, fairly turbulent international context, featuring high pressures on some Euro Area countries, pressures that can indirectly affect Romania too,” the official explained. That is why Tanasescu stresses political stability and the coherence of the act of governance, which is very important, so that the possible external turbulences on the international market will face a powerful governmental economic structure so that the latter will be able to handle potential external turbulences.It is clear for Mihai Tanasescu that any continuation of political turbulences can influence the economy. “But I believe that at this moment there is sufficient political maturity for there to be political dialogue that would create a predictable outlook for the economy. There is need for that, because the political still has a big influence on the economy in our case.”Asked whether economic reforms stagnated during this period of political conflicts, Mihai Tanasescu pointed out that judging by the almost daily talks he had with the Finance Minister, the National Bank of Romania (BNR) Governor and the Economy Minister the reforms continued and things went in the right direction. “You’ll see in the following days, at the end of this mission, that the progress that was nevertheless made in this regard will be well outlined in the Fund’s and Commission’s report.”Mihai Tanasescu nevertheless pointed out that “there are backlogs, especially when it comes to arrears mainly located at local community level, at health sector level. This trend however is a downward trend, but the arrears still remain fairly high. That is why the focusing of measures on this arrears segment should be accelerated, probably in the following period, so that they will continue their downward trend in the quarters and months to follow.”We remind our readers that an International Monetary Fund delegation led by Erik de Vrijer, the head of the IMF mission for Romania, has started its sixth evaluation mission. According to Tonny Lybek, IMF Resident Representative in Romania and Bulgaria, the negotiations with Romanian authorities are scheduled on July 31 – August 13, the head of the Fund’s delegation set to arrive in Romania today and to leave the country on August 14.

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