IMF: Romania"s goal should be to reform the public sector, not to raise taxes

The International Monetary Fund thinks that this year, Romanian authorities should commit to making a major reform of the public sector instead of turning to changes of the taxation system which could disrupt the business environment and create macroeconomic instability.

IMF officials claim that the priorities of the Romanian authorities should be lowering budget deficit, ensuring macroeconomic stability and cutting public spending, instead of reorganizing the taxation system, which is an ill-timed action.

Mihai Tănăsescu, Romania"s official with the IMF, said the following, as quoted by NewsIn: "We stand by our opinion that the reorganization of the fiscal policies in 2010 is not the best course of action. Romania needs to focus on restructuring public spending, complying with the conditions of the law of unified wages, the law of pensions and cost norms. The near term objective should be the reform of the public sector, not introducing new taxes".

The official stressed that Romania should rethink its medium and long term fiscal restructuring policies, by supporting the business environment and setting clear goals, or else the only outcome will be the disruption of the market.

The IMF said that, given the fact that in the short term, it expects Romania"s economy to see tepid growth in the short term, which is why it needs macroeconomic stability first of all.

• Economic growth prognosis revised upwards?

Mihai Tănăsescu announced that the IMF may revise its 2010 economic growth forecast, since Romania"s GDP may increase by more than 1.3 percent.

The hike is subject to Romania"s macroeconomic stability, which is essential for Romania to exit its current difficulties.

Jeffrey Franks, the head of the IMF mission to Romania, yesterday said that if Romania were to reach macroeconomic stability, "Romania"s economy would return to stronger growth quicker".

The head of the IMF mission to Romania said that in the coming two months, Romania may see slow economic growth, which may speed up towards the end of the year, provided there is macroeconomic stabilization.

• Reducing the budget deficit remains a priority

The officials of the IMF said that the adjustment of the budget deficit needs to remain a priority for the Romanian government.

Failing to restructure state owned companies that are losing money could jeopardize the budget deficit target of 5.9% of the GDP set for the end of 2010, according to Romania"s envoy with the IMF, Mihai Tănăsescu.

He explained: "Reforming public companies which are losing money is extremely important, and failure to do so could have a negative effect on the budget deficit target of 5.9% of the GDP in 2010. We want to reach the budget deficit target by cutting spending and increasing revenues, not by increasing arrears".

Tănăsescu added that until January 27th, the IMF officials and the Romanian authorities will discuss the new quarterly targets, including those set for the execution of the budget and the ways they will be carried out.