The government’s package of fiscal measures is designed to reduce the budget deficit, but many other programs are needed to improve efficiency and revenues, the head of the IMF’s mission in Romania, Ian Kees Martein, said on Wednesday.

An IMF team led by Ian Kes Martin, the head of the mission in Romania, has been in Bucharest since September 25 for the annual analysis of the Romanian economy, and on Wednesday the head of the mission will present the findings.

Head of the IMF mission in Romania: Turnover taxes are a burden for some companies

Jan Case Martin:

• “The package of fiscal measures is good, but it needs to be improved. The new fiscal package will improve the situation for 2024 in terms of controlling the budget deficit, which should be maintained at the level of 3% of GDP. The goal will not be achieved in 2024
• Sales taxes will be a burden for some companies.”

According to him, the IMF report examines the economic situation in Romania for 2023.

The main conclusions presented by the head of the IMF mission in Romania:

• “Romania has reached a stage where it has overcome the shocks to the world: the pandemic and the war.

• “Inflation is falling. This should not lead to tax breaks.”

• Other reforms require increased revenue and honest reporting of revenue. More efforts are needed to close gaps in tax incentives and property tax legislation and the transition to a green economy. Otherwise, the results cannot be predicted.”
• Easing of monetary policy should be focused on controlling inflation. There should be a gradual reduction in spending. The IMF looks closely at the growth of liquidity and the level of inflation.
• The monetary system of Romania is relatively stable. It has weathered well the crises it has passed through, the corresponding shocks related to capital flows, it has adapted, even shown flexibility in this regard. Fiscal consolidation needs to be better controlled.
• Banking supervision must be continued, and monetary policy must be sound and stable. Financial intermediation is important for creating an economic buffer.
• It is necessary to properly control the policy of employment of women, to attract more women to the labor market, to invest more in education. To improve work efficiency.
• The energy market is dominated by the policy of decarbonization from the exploitation of resources in the Black Sea. Policies are required to use these sources.
• It is important for Romania to bring public finances on a healthy path. The fiscal package will be an important first step in this direction.
• Each member country has the right to apply for assistance from the IMF. At this stage, we see no need for Romania to do so.
• Our advice is to continue cleaning the system by removing exceptions. This will be the direction of our advice.
• We will have to think about progressive taxation. You must first make sure that everyone pays their dues.
• Fiscal policy needs to be well communicated to gain credibility and support.

• Regarding the budget: it is good to be conservative with income to limit the risk of cutting expenses during the year.

• We believe that next year the budget deficit will decrease from 6% to 5%. We do not see a funding challenge, but it is important to stay on this path of fiscal consolidation to ensure that the government can borrow at low interest rates.

• The level of tax revenues is much lower compared to what we see in Europe.
• Agree that more needs to be done in managing the economy. There are certain milestones that allowed the sale of Termoelectrica. I did not discuss this matter with the authorities.
• Property tax in Romania is outdated and not very productive. We support its reformation. We advocate modernizing the property tax system to better reflect value. It’s easy to do.
• Tax on micro-enterprises is a sector that concerns us and needs improvement. Nothing in fact, except for a legislative gap and the possibility of such entrepreneurs to evade and not pay tax. The threshold of 250,000 euros is not enough for them to avoid paying tax. We believe that €250,000 is too much. I don’t know the exact number.

• We are for a single VAT. Whether an idea that does not exclude these households should continue should be explored. It is necessary to simplify the system and introduce a single tax to simplify the system.

• PNRR is an important opportunity for Romania. We have already seen the incentives that investment provides. We want this process to continue. This does not mean that Romania cannot achieve these milestones. This PNRR object must be used in the future. There are some delays, but the impact and engagement has been positive. We call on the authorities to maintain this pace.

What do the IMF forecasts show for Romania

The IMF estimates economic growth at 2.4% this year and 3.7% in 2024, according to the institution’s latest report. Note that the revision was made downwards: in October, it predicted 3.1% for 2023.

As for inflation, he also sees it in the double digits, namely 10.5% (this is the annual average) and 5.8% in 2024.

At the end of this year, inflation is expected to be 7.5%.

The projected current account deficit is 7.9% in 2023 and 7.7% in 2023.

The National Strategy and Forecast Commission expects the economy to grow by 2.8% this year.

In its January report, the World Bank forecast 4.6% in 2022 and 2.6% in 2023.

The European Commission forecasts 2.5% for this year.

What does the IMF’s analysis of economics in Article IV mean?

An International Monetary Fund team led by Ian Kes Martin, Chief of Mission in Romania, arrived in the country for the annual Article IV analysis of the Romanian economy.

Such consultations periodically take place with all IMF member states.

The IMF team discussed economic policy with the Romanian authorities in meetings with representatives of the Ministry of Finance, the National Bank of Romania and other government institutions. At the same time, experts of the international financial institution met with representatives of the private sector and non-governmental organizations.

The consultation is an oversight activity that is mandatory for all member states. The purpose of consultations based on Article IV is to examine the financial and economic situation at the national level and formulate some general recommendations on monetary, financial and economic policies that should be followed to ensure stability and positive development at the level of the economy. . Based on the preliminary findings of this mission, the team prepares a report, which, after approval by management, will be presented to the IMF’s Executive Committee for discussion and approval.