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International Information Centre for Balkan Studies



Romania MPs to Vote on New Deal With Lenders

Romania's parliament is to vote on a new aid deal from the IMF and the European Commission, intended as a form of insurance against potential market turbulence.

Romanian Prime Minister Victor Ponta says that Romania could continue to have some sort of agreement with the International Monetary Fund and the European Commission, but that parliament will decide on the issue.

"Parliament is to vote on whether Romania should seek a new deal from international lenders when the current one expires this month,” Ponta said early this week.

Romania's 2-billion-euro stand-by agreement with the IMF expires in September 2015. A preventive deal, the authorities have not accessed the funds.

The government had planned not to renew the agreement. The situation seems set to change now, however, as a new IMF deal is supported by all main political parties in parliament, again as a safeguard.

Many experts say Romania should continue its agreement with international lenders as the current international situation generated by the Greek crisis makes it necessary. Finance Minister Eugen Teodorovici also supports the idea.

"Romania intends to start talks with international creditors over a new, enhanced and flexible backstop facility as early as this year, to help protect against market shocks,” Teodorovici said recently.

He added that while Romania can manage on its own and does not need IMF money, it would be good to have a safeguard against potential market turmoil.

Romania’s current agreement with the IMF, the European Union and the World Bank has not been reviewed in over a year, as the international lenders oppose the centre-left government’s plans to impose fiscal relaxation and increase public sector pay.

The IMF and the EU have also criticised the Ponta government’s decision to impose a new Fiscal Code, which includes a controversial tax cuts. The Code, approved on September 3, cuts VAT from 24 to 20 per cent starting from January 1, 2016, and to 19 per cent starting 2017.

The Code’s initial form was rejected by President Klaus Iohannis who sent the code back to parliament for review, citing concerns about the likely impact of the measures on the budget.

The government has continued to champion tax cuts, however, saying they are needed to boost growth.

President Iohannis also asked for the imposition of an extra excise on fuel and a fee on special constructions to be postponed.

The new code delays the excise tax on fuel to 2017 and does not contain the tax on special buildings.

The cuts are expected to lead to Romania running a budget deficit of 2 per cent of GDP next year, up from an estimated deficit of 1.8 per cent in 2015.

This would be larger than was initially agreed under an EU fiscal pact but still lower than the 3-per-cent Maastricht ceiling.

Marian Chiriac

 

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