Thursday, October 21, 2010

Fate of the Romanian Economy in 2011 depends on talks with IMF


Yesterday saw the start of two weeks of negotiations with the Fund, which are set to provide some answers to essential questions as far as next year is concerned.
Romania could find out in about two weeks' time if and how much economic growth it will see next year, what the main taxes will look like - flat rate, social contributions, VAT, what the new arrangement to be signed with the IMF in spring will look like and implicitly how big the RON/euro exchange rate volatility will be.
The first official talks between the IMF's review mission and the authorities began yesterday.Jeffrey Franks, the mission chief, says the Fund's forecasts regarding the Romanian economy could be adjusted, but not significantly.Forecast modifications have become a current practice over the course of the arrangement sealed in the spring of 2009, with the IMF so far only revising its calculations for the worse, after failing to anticipate the economic trends. Now the Fund expects a 1.5% GDP growth for 2011.The final forecasts will be an essential tool towards building next year's budget. The draft that recently featured in the press but has yet to be officially assumed is already suspected of overestimating the revenue potential. Things are made even more complicated by the chaos on the political scene, which was reflected yesterday in the Parliament in the decisions on introducing a 5% VAT rate on basic food items and on exempting from taxation pensions of less than 2,000 RON, after there had been talk of taxing all incomes of this type.If these decisions are politically assumed, by the head of state inclusively, attempts by the main ruling party PD-L to talk to the IMF about cutting the flat rate to 12%, cutting overall social contributions to 41% and increasing the minimum wage to 700 RON will fail.

1 comment:

Anonymous said...

BRUSSELS - MEPs have voted by a vast majority to increase next year's EU budget by 5.9 percent, a move they define as "responsible" despite government spending cuts in member states.

The increase on the 2010 budget is marginally lower than the one initially proposed by the European Commission earlier this year, but substantially higher than the 2.9 percent supported by a majority of member states.

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"The European Parliament has acted with a great sense of responsibility," said European Parliament President Jerzy Buzek on Wednesday (20 October) after the legislature refrained from pushing the commission's figure upwards, as is usually the case.

The 2011 EU budget proposed by MEPs would include €142.65 billion in commitments and €130.14 billion in payments. The negotiations are the first to take place under the new Lisbon Treaty format, handing parliament a greater say and allowing for only one reading.

From 27 October, member state and parliament negotiators will have three weeks to agree a joint text, with the issue set to feature prominently on the agenda of an EU leaders' summit in Brussels next week (28-29 October). Failure to do so would result in the continuation of the 2010 budget and likely disruption.