The IMF, again in Bucharest

A joint delegation of Romanias international lenders is in Bucharest for a fresh assessment of the stand-by agreement concluded last autumn.

Corina Cristea, 02.06.2014, 12:30

One of the focal points on the agenda of the talks is the government’s intention to introduce a 5% reduction in employer social security contributions.

A mission of the International Monetary Fund, the European Commission and the World Bank is assessing in Bucharest in the next couple of weeks the latest stand-by loan agreement with Romania. Last September, the IMF board approved a letter of intent submitted by the Romanian authorities for the conclusion of this precautionary agreement worth some two billion euros for the next two years. Another two billions are to be added by the European Commission.

This agreement, which is the tenth Romania has concluded with the International Monetary Fund in the past 23 years, is due to expire in mid-2015. According to Liviu Voinea, minister delegate for budget, this stability contract, which is an anchor, will undoubtedly be the last with the aforementioned financial institutions.

The evolution of macro-economic indicators, particularly the budget balance is to be discussed, as budget collection hasn’t met the envisaged level and the government intends to put in place a series of measures, which will chiefly affect revenues to the state budget. Among these there is the intention of the Finance Minister Ioana Petrescu to implement a 5% reduction in employer social security contributions.

According to economic analyst Aurelian Dochia, the government should convince the representatives of international lenders that Romania has the necessary resources to take this measure as of July 1st: “Although macro-economic indicators are very good, particularly in terms of economic growth, that surprisingly hasn’t been visibly reflected in revenues to the budget and probably this will be a major topic of discussion with the IMF team. In relation to this, the government’s proposals to operate tax changes and reduce social security contributions (SSC) could be brought into discussion, but they must come up with good arguments in order to convince the IMF that such a cut doesn’t pose any risks to the budget and will not lead to a budget deficit, way beyond the envisaged target at the end of the year.”

According to minister Petrescu, the SSC cut for employers will be a shot in the arm for the business environment, curbing the fiscal burden facing honest employers. Another positive result is the creation of new jobs, as the measure is also aimed at curbing black market labor. Budget losses upon the implementation of this measure are estimated at over two billion and a half Romanian lei in the second quarter of the year, but the government expects to collect almost one billion in revenues to the budget, both thanks to the economic growth and from taxing the new legal jobs resulting from curbing black market labor.